How to Increase Your Chances of Getting a Mortgage
Buying a home is one of the most significant purchases of life, but it is not easy for many to buy their perfect home using cash, and this is where a mortgage is needed.
However, the mortgage process is not a cakewalk either, and there is no guarantee that borrowers will qualify you for the required mortgage. The whole procedure needs proper preparation and patience.
Here we will discuss some of the best ways that can help to enhance your chances of getting a mortgage. Let us dig into more details to know how to increase your chance of getting a mortgage.
In This Article:
Make your debt to income ratio low
What are my chances of getting a mortgage? This is one of the most common questions in a borrowers’ mind when they seek a mortgage. Lenders focus on the credit score of borrowers when making decisions.
A debt to income ratio means the total amount of debt currently present on your overall income. It is crucial to clear the debt as much as possible and close any unused accounts because lenders are concerned about mortgage repayments as the debt to income ratio measures your ability to make the payments each month.
So, if you want to improve your chances of getting a mortgage, lower your debt-to-income rate.
You should carefully spend money each month to reduce monthly recurring debt. Moreover, you can increase your income source by working extra hours at your job and improving your skills.
Go for a bigger deposit
Lenders offer lower interest for a bigger deposit. A significant down payment enhances your chances of getting a mortgage as it reduces the loan to value ratio.
You can determine the loan to value ratio by dividing the mortgage value by the purchase price of the property.
For instance, if you want to buy a house for £100,000 and made a down payment of £20,000 and require a mortgage of £80,000. Thus loan to value would be 80%.
This loan to value ratio can be lowered to 60% if you put down a payment of £40,000, and it will be easier for you to qualify for the lower loan amount.
Thus increased down payment means low loan to value ratio with a low-interest rate and small monthly payment till the loan period.
Moreover, if you make down payment of 20% or more than you don’t require mortgage insurance and this will save you money.
Improve your credit score
A credit report shows your history of bills and paying debts. A credit score is used by lenders to know your credit risk. Lenders check credit scores to determine the likelihood of timely payments for loan repayment.
In short, the higher the credit score, the better mortgage rates you can get so, if you want to enhance your chances of getting a mortgage, then achieve the highest possible credit score you can.
Check the credit report, and if you find any mistake, then start working on it. You can pay down your debt, set payment reminders for timely bill payment, and keep your credit balance and credit card balance low. You require a good credit score for qualifying for the best mortgage deal.
Checking a credit report is extremely necessary, so you should take a close look to see any mistake as it may harm your credit. You should consider the following things while checking a credit report.
- Check the information carefully for actions that are not yours. It may happen mistakenly; for instance, because of similar names or addresses or an incorrect social security number, the creditor got confused.
- Carefully check already paid debts
- Incorrect information due to identity theft
- Details from an ex-partner
- Outdated information
- Incorrect information for unused or closed accounts
To upgrade your chances of getting a mortgage, make sure to check the last six months’ worth of credit reports before planning to go for a mortgage as this will give you time to know about and fix any mistakes.
Immediately contact the credit agency if you find any error on a credit report and solve the issue as soon as possible.
Spend less before the mortgage
Lenders will ask many details about your expenses, and sometimes they want to see your bank statements because they want to verify the information you have provided them.
Lenders want to know you can make repayment of the loan if rates change to 7%. You may have to give your last three month’s bank statements before applying for a loan. They are used to check your income and recent spending.
If you want to upgrade the chance of getting a mortgage, then don’t spend unnecessarily at least a few months before you apply.
Leave online or local betting aside and cut other expenses if you are going to apply for a big mortgage, as it will affect your monthly budget. Spend less as moving to your new home can come with high costs. Every penny is vital in the time of need.
Avoid applying for credit in a short timespan before a mortgage
Applying for credit in the last three months before applying for a mortgage as it can disturb your credit score, and ultimately the rejection chances also increase. For complete safety, you can take a six-month gap.
Lenders always see your credit file when you apply for a credit card, overdraft, loan, or even a utility contract or mobile phone. The data save every time, though you made no contract.
There are minimum chances that you will be granted credit if there are more searches in a short period of time, as many searches in a short period of time make it seem that you are desperate to borrow money.
So avoid applying many times for credit if you want to enhance the chances of getting a mortgage.
Your former spouse’s information plays an important role
It’s time to disassociate yourself if you are financially linked to a person with whom you are separated because if the person has made any late payments or has any monetary issue, it will affect you.
Sooner rather than later you should contact credit agencies to get the notice of disassociation to improve the chances of getting a mortgage.
Maybe you are still linked to your roommates, so make sure that their credit history is not affecting yours. It is better to de-link as soon as possible.
Remember, if you are linked with a person with a good credit history, then also there is a risk for you in the future.
Make big no to overdrafts as these should be used in financial emergencies only. Lenders do not want that a person is in overdraft at least in the last three months before the loan. No overdraft means more chances of getting a mortgage.
Pay your rent on time
Paying your rent on time can also make your credit history more secure. Specific schemes can be used to pay the rent and ultimately building the credit history with an increased rating.
It is a smart way to make your credit history reliable, but if you miss any payments, then it can harm you too.
Ready your documents
Get your paperwork ready in advance as every lender wants to see your proof of income before offering you a mortgage. It is better to get the paperwork done in advance to avoid last-minute delay and to speed up the process.
Some lenders need original copies, so collect them in advance, so you don’t need to wait further. Well prepared documents means an enhanced chance of getting a mortgage as there will be fewer people involved in reviewing your documents.
Below is the list of documents that the lender probably will want to see:
- Bank statements (last three months)
- Payslips (last three months)
- Proof of income and tax paid each year (P 60 tax forms)
- Commission/bonuses proof
- Tax returns (last three years)
- Deposits proof (bank statements)
- ID/Address proof
Avoid unusual property
Your chances of getting a mortgage will decrease in the case of unusual properties. Lenders do not want to lend against properties as they are hard to sell. The best way is to include a property with a commercial premises and avoid old property.
If you want to qualify for financing, then it is necessary to adopt specific ways to upgrade the chances of getting a mortgage. Make sure to begin the process by improving your credit score as it is the most vital aspect to look into.
Furthermore, go for a bigger deposit to lessen your burden. Start preparing at least six months before applying for the mortgage.
Find a great deal on your next mortgage
Whatever term suits your budget we can help you find a solution. RateWise can match you with a local broker that knows how to help—regardless of your credit score! Get pre-approved today.
How does a mortgage work?
A mortgage happens when a lender gives you money to purchase a home and you pay the loan back slowly with interest.
The loan very secure as the value of the loan is secured against the home that it is helping pay for.
What is a mortgage broker?
Mortgage brokers are here to help you find the best mortgage deal on the market for your situation. We match you to a lender who is willing to give you a mortgage and you don’t have to go searching for the right lender.
What types of mortgages are there?
There are two main types of mortgages, fixed and variable rate. A fixed rate mortgage charges the buyer the same amount of interest over the whole mortgage period, so all of the payments are the same.
A variable rate mortgage involves interest rates that can change, so your payments may be different each time.
If I have bad credit can I still get a mortgage?
Bad credit will not prevent you from getting a mortgage. We work with certified lenders who cater to a diverse range of clients and will find one to fit your situation.