Buying your first home is a major milestone, and getting your mortgage application right is a crucial part of the process. Preparing well can significantly boost your chances of securing the right mortgage and getting a good deal. Here’s a straightforward guide to help you get ready for your first mortgage.
Understand What Lenders Look For
Credit Score: Your credit score is a major factor in determining whether you’ll be approved for a mortgage and at what rate. A higher score generally means better mortgage rates and terms. Make sure your credit report is in good shape before you apply.
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Income and Employment: Lenders want to see that you have a steady income and stable employment. This helps them assess your ability to repay the loan. They’ll look at your salary, any bonuses, and your employment history.
Debt-to-Income Ratio: This ratio compares your monthly debt payments to your income. Lenders use it to gauge how much of your income goes towards debt repayments. Keeping your ratio low can improve your chances of getting a mortgage.
Save for a Deposit
How Much to Save: The larger your deposit, the more mortgage options you’ll have and the better rates you’ll get. Aim to save at least 5-20% of the property’s price as a deposit.
Help with Deposits: If saving isn’t easy, look into government schemes like Help to Buy or Shared Ownership, as well as other options such as:
- Parents or relative can gift part/all of a deposit
- One lender has a product available for people who have been renting over a 12 month period, and based on affordability, can get 100% mortgages (depending on criteria)
- £5k deposit mortgage products available
- Shared Equity mortgages
We talk about this in our other blogs here.
Get Your Financials in Order
Review Your Budget: Understand your monthly income and expenses. This will help you figure out how much you can afford to borrow and repay each month.
Clear Debts: If you have outstanding debts, consider paying them down. This can improve your credit score and reduce your debt-to-income ratio.
Save for Additional Costs: Apart from the deposit, you’ll need to cover other costs like legal fees, survey costs, and stamp duty. Make sure you budget for these expenses.
Choose the Right Mortgage
Fixed vs. Variable Rates: Decide whether you prefer the stability of a fixed-rate mortgage or the potential savings of a variable-rate mortgage. Each has its benefits and risks.
Repayment vs. Interest-Only: With a repayment mortgage, you pay both interest and principal, so you’ll owe nothing by the end of the term. Interest-only mortgages require you to only pay the interest, meaning you’ll still owe the original capital at the end.
Government Schemes: Explore options like Help to Buy, Shared Equity, or First Home schemes if they apply to you. These can offer valuable assistance.
Prepare Your Documentation
Essential Documents: Gather your ID, proof of income (e.g., payslips or tax returns), bank statements, and details of any current debts. Having these ready will speed up the application process.
Proof of Deposit: You’ll need to show where your deposit is coming from. Make sure you have documentation to prove the source of your funds.
Get Professional Advice from Us
Before You Start Looking: Contact us before you begin your house hunt. We’ll help you understand what you need to prepare, which can save you time and streamline the mortgage process. We can provide tailored advice and help you get your finances in order before you start viewing properties.
Expert Guidance: Our team can guide you through the mortgage application process, help you explore your options, and ensure you’re well-prepared to make the best decision.
Understand the Application Process
Mortgage Agreement in Principle: Before you start house hunting, get a mortgage agreement in principle. This shows sellers that you’re a serious buyer and can afford the mortgage.
Application: Once you find a property, you’ll need to formally apply for the mortgage. We’ll guide you through this process and ensure all paperwork is in order.
Survey and Valuation: Lenders will usually require a property survey and valuation to ensure the property is worth the amount you want to borrow.
Plan for the Future
Budget for Ongoing Costs: Owning a home involves ongoing costs like maintenance, insurance, and utilities. Make sure your budget accounts for these.
Review Your Mortgage: Once you’ve secured your mortgage, keep an eye on rates and terms. Reviewing your mortgage periodically can help you save money over time.
Preparing for your first mortgage doesn’t have to be overwhelming. By understanding what lenders look for, saving a solid deposit, and getting your finances in order, you can improve your chances of securing a mortgage that’s right for you. Professional advice can also be invaluable in navigating the process and finding the best deal.
If you’re ready to start your journey to homeownership or need help with your mortgage application, contact us at Ingrid Cairns & Associates. We’re here to guide you every step of the way.
* Ingrid Cairns & Associates Ltd receives a small referral fee from Check My File
