How to get mortgage ready

July 8, 2024 | Laura Whittle

Getting mortgage ready is an essential step in your journey to homeownership. Ensuring that you are prepared can make the process run more smoothly and put you in the best position to secure your dream home.

We’ve put together this handy step-by-step guide with Metro Finance, with some tips on how you can get yourself mortgage ready when buying a home with Onward Living.

 

1.1 Review Your Credit Score

Your credit score plays a crucial role in mortgage approval. Did you know you can:

• Check Your Credit Report: Obtain your credit report from agencies like Experian or Equifax.
• Make Amends: Dispute any inaccuracies you find to ensure your report is accurate.
• Improve Your Credit Score: Pay bills on time, reduce debt, and avoid new credit applications in the months leading up to your mortgage application.

1.2 Evaluate Your Income and Expenses

Lenders will closely examine your income and expenses to determine affordability:

• Document Income: Gather payslips, tax returns, and bank statements to present a clear picture of your earnings.
• Track Expenses: You might want to start budgeting in order to better understand your spending habits. Explore useful tools like the budget planner created by Money Saving Expert, Martin Lewis.

2.1 Determine the Amount Needed

Typically, you’ll need a minimum of a 5% deposit, however it is worth noting the bigger your deposit savings the more mortgage options there are available.

• If you are buying your home through shared ownership, the deposit required is often smaller than if purchasing on the open market, as this is based on the share you are buying. For example, if you were to buy a 40% share of a home with a full value of £200,000, the value of your share would be £80,000. If a 5% deposit was required, your deposit would be £4,000.

3.1 Avoid New Debt

Avoid taking on new debt before applying for a mortgage:

• Limit Credit Usage: Keep credit card balances low and avoid unnecessary loans to maintain a healthy credit profile.

4.1 Apply for an AIP

An agreement in principle, also known as a ‘decision in principle’, a ‘mortgage promise’ or a ‘mortgage in principle’, is a written statement from a mortgage lender confirming that, ‘in principle’, they would lend you a certain amount.

• Documents Needed: Provide proof of income, identification, and bank statements.
• Online Applications: Many high street banks offer convenient online AIP applications.

5.1 Prepare Your Paperwork

Having all necessary documents ready can speed up the mortgage application process:

• Proof of Identity: Passport or driving licence.
• Proof of Address: Utility bills or council tax statement.
• Financial Documents: Payslips, P60, bank statements, and details of any other income sources.
• Evidence of deposit and an audit trail of funds.

6.1 Mortgage Brokers

• Consider using a mortgage broker for personalised advice. If you are buying through shared ownership, it might be worth considering a specialised shared ownership mortgage broker who can source a suitable product and provide free mortgage advice.

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Getting mortgage ready involves careful planning, saving, and a clear understanding of your mortgage options. By following each of the above steps, you can increase your chances of securing a mortgage that suits your financial situation and homeownership goals.

Remember, the key to a stress-free and smooth journey is to start early and stay organised throughout the process!