Getting a mortgage is a big step in anyone's life, but it can also be a very stressful time. Before applying for a mortgage it is a good idea to prepare properly. It might take a few months to prepare, but it is worth it to get your credit rating in tip top condition, allowing your potential mortgage lender to view your credit risk as low. This helps you to not only secure a mortgage, but also get a great rate!
A mortgage taken out against your home's value which does not have to be paid back until you die or vacate the home is known as reverse mortgage. It is somewhat the opposite of a traditional home loan because you can have the loan money doled out to you in monthly installments if you want to. So, it is basically a loan that pays you, at least for a while. Whatever amount you spend from your home's equity will be owed back if you ever have to move out of your home or otherwise give up ownership of it, such as by your own death. However, in the meantime you will have the reverse mortgage funds at your disposal to enjoy your retirement and pay for both essentials and extras you otherwise might not be able to afford.
Check your spending
A recent update in the mortgage application process means that it is less about how much you earn and more about the money you have available to pay for your mortgage. The process can involve a lengthy interview, sometimes lasting up to three hours, where mortgage applicants are grilled about their spending habits. Sit down with your budget and look honestly at your spending – are there areas where you can easily cut back?
Budget for extra costs
When applying for a mortgage there are loads of extra costs to take into consideration – firstly from the potential mortgage lender and then the extra moving costs that you might not have considered. Get quotes from removal firms, budget for those first few takeaways in your new home and consider any extra furniture or homewares that you need to purchase.
See your credit report
Your credit report contains information about your credit history and this information is used to create your credit score – a number between 0 – 5 where the higher the number, the better. Even if you have a low credit score, there are products that cater for people with a low credit score, but these usually have a higher rate of interest than someone who has a good credit score.
Viewing your credit report regularly also helps you to spot identity theft – if you spot any new credit accounts that you haven't opened, or any other anomalies then contact the credit providers immediately.
What is a credit report
A credit report is an overall picture of your borrowing history. It shows:
- Your available credit and existing accounts
- Your repayment history
- Any bankruptcies or court judgements
- Whether you are on the electoral roll
- Any recent credit applications
- Anyone you are financially associated with (things such as a joint bank account or mortgage)
When applying for a mortgage, creditors will look at your credit report to assess what sort of borrower you will most likely be.
Keeping your credit report healthy
In order to look attractive to potential mortgage lenders, it is important to keep your credit report looking healthy. There are plenty of ways that you can do this:
- Make sure the information is accurate and up to date – paying particular attention to the addresses and financial accounts.
- Make payments to existing creditors when they are due – if you are in a position to completely pay off a debt then that would look great on your credit report.
- Ensure that you are on the electoral role at your current address.
- If you no longer need credit and you have paid off a debt, consider closing the account.
Tips for submitting your application
When applying for a mortgage, the smallest things can make a big difference. Once your credit report it in tip top condition and you have found the house you want to purchase, it is time to make your application.
- Make sure to use a landline number on your application – this tells your potential lender that you are stable.
- Try not to change your job in the run up to your mortgage application – of course life happens, but sticking with a job shows stability.
- Ask questions! If there is something that you don't understand then be sure to ask questions.
Do you have any other tips when it comes to applying for a mortgage?