10 mistakes to avoid before getting a mortgage

 

If you are planning to apply for a mortgage now or in the next few months, then you need to know the most common mistakes to avoid before submitting a mortgage application! 

 

Many lenders want to see a track record of employment when assessing your income. Ideally they would like you to be in the job you are in for a number of months prior to a mortgage application, the reason being due to probationary periods. Many jobs come with a 3-6 month probationary period, which you may not pass. So, a lender likes to see that you are not in a probationary period as this gives you more job security, which is essential when they are going to lend you a large sum of money that they want you to pay back. 

 

If you are planning to move jobs or have just moved jobs its not the end of the world, there are still lenders who will lend to you but they are limited and they will require further information. Suck as a copy of your employment contract, 1st payslip and potentially a reference from your employer. 

 

This one is a big NO-NO just before submitting a mortgage. Unlike if you are employed having one payslip is enough as the lender knows that your salary is guaranteed. For self employed applicants lenders ask for 2 years’ worth of tax returns in order to assess your income, if you have recently gone self-employed you won’t have this documentation to evidence your income. 

 

Any new application for credit whether it be a credit card, loan or mortgage is still an application for credit. Multiple applications for credit in a short period of time can be a red flag to lenders as this is a sign of poor money management and a time of financial distress. Opening a new credit card a year or so BEFORE you intend to apply for a mortgage is a great way to build up your credit history (especially if you are a first-time buyer who has never had credit), providing it is used little and often. You will see when you apply for credit that initially your score will drop as a result but over time your score will improve as you evidence your ability to borrow small sums of money and pay it back on time. 

 

Like we said above, using small amounts of credit and paying them back on time and in full if possible are a great way to build your credit history and score. Lenders will look at your credit card usage over the last 6 months or so to get an idea of how you have been using the credit you already have. They like to see that you can keep the usage below 50% of your limit as this evidences that you are not reliant and credit and can pay it back effectively. 

 

The electoral roll is the register that lenders use to check where you live. Any credit you have used (either correctly or incorrectly) is registered to your address. If you are not registered at the correct address, they cannot find you or your credit history. If you have poor credit, you would think not being found would mean you could fly under the radar right? Wrong. If they can’t find you then they cannot make a decision on whether to lend to you or not. 

 

Lenders require details of all properties you have lived within the last 3 years, including the full address and the dates you moved in and out of those addresses. With this information they can then credit check you at each of those addresses to make their lending decision. Having incorrect addresses on your documents may seem like a minor detail but if those addresses are for properties that the lender isn't aware of they will investigate further. This could at best slow your application down and at worst decline your application if they find an address you haven't declared that they discover adverse credit registered to. 

 

Providing information on a mortgage application is one thing, but you then need to back this information up with documented evidence. Lenders want the most recent document for each document type. Payslips and bank statements but be dated within the last 30/31 days to be the most recent. ID must still be valid, so submitting your passport that expired 3 years ago, but still shows your picture and correct name will not work. 

 

Lenders want certainty (or as close as possible) that you are going to repay the amount of money they lend to you. So having missed payments on your credit file or bounced payments on your bank statements does not give the lender the confidence they are looking for on your mortgage application. Best practice is to have all of your committed outgoings – credit, utilities etc on direct debits so that they are taken automatically. Keep an eye on your bank balance to make sure you have enough funds in your account for any pending payments to be taken. 

 

Some gambling is OK on your bank transactions, but if the transactions or frequent, large and follow a pattern of potential addiction this will result in your mortgage application being declined. The amount you gamble is relative. If you earn £30,000 per year for example and like to bet £10 a week on a Saturday football accumulator, that is fine. But if you are earning £30,000 per year and gambling £500-1000 per month than that is not relative to your income. If you have £500 per month going out on gambling, how much do you realistically have left to pay a mortgage and household bills? 

 

Just like excessive credit usage, living in your overdraft and going over your authorised limit is a red flag to lender too. This shows credit dependency and lack of money management. There can be an argument that you will stop your overdraft usage in the future because you can evidence you run your account to zero because you are moving most of your income into your savings each month for your deposit. This will obviously stop when you get your house because you won’t need to save frantically for a deposit anymore. 

 

We hope by reading these tips you can avoid these mistakes and put yourself in the best position possible when it comes to applying for your next mortgage.