Preparing for a Mortgage Application: 5 Important Factors to Consider When Applying for a Mortgage

Applying for a mortgage is the only option for most people looking to purchase a home. It is a big deal, considering the value of owning your own home, which is why it can be disappointing if your application fails. Unfortunately, most mortgage applications fail, shattering many people’s dreams of owning a home.

Whether or not you qualify for a mortgage depends on how well you meet the lender’s requirements. As such, it pays to be prepared. Here is a quick guide to help get you on the right track for a successful mortgage application.

5 Important Factors to Consider When Applying for a Mortgage

Mortgage applications are strict, and lenders can reject your application for various reasons. To this end, it is prudent to understand the requirements and prepare well before making a mortgage application. Here is a brief overview of five important factors to consider when preparing your application.

1.      Your Credit Score

All lenders consider borrowers’ credit scores when gauging their reliability. A good credit score indicates that you can repay your loans, increasing your likelihood of qualifying for a mortgage. As such, check your credit score and ensure that it is good.

You can check your credit score by requesting a copy of your credit report from TransUnion, Equifax, or Experian. It is worth noting that your report can contain errors, which can affect your credit score. As such, check for any errors on the report, such as missing information or unrecognized entries, and get them resolved.

Improving your credit score is easier said than done. Overall, it involves getting your finances in order. For example, you should clear or pay down your current debts, including loans and credit card debts. Registering as a voter and paying your utility bills on time also helps. Most importantly, you need a regular source of income.

2.      Paperwork

Applying for a mortgage involves a lot of paperwork, including documents showing the following:

• Proof of Identity: The accepted proof of ID documents include an updated passport or driver’s license.
• Proof of Address: You must provide at least two documents providing your documents, including a credit card statement, utility bill, council tax bill, or bank statement. Notably, your names must be spelt correctly on the documents to make them valid.
• Proof of Employment: On one hand, employed individuals should provide at least three months of payslips or a P60 from their employers. On the other hand, self-employed individuals should provide tax assessments of their accounts for the past three years.
• Finances: You must provide copies of your bank and credit card statements for the past six months. Documents related to loans and regular expenditures are also required.

Notably, lenders require original versions of most of the documents. Moreover, small mistakes or inaccuracies with your documents can result in a rejection.

3.      Affordability Test

Besides your income, how much money you spend and save also matters. To this end, lenders assess how much a borrower can afford to pay per month by applying affordability tests. To this end, your lender can ask for a detailed budget showing your income and expenditure. The budget should be accurate and detailed, covering all major and minor expenses.

4.      Mortgage Agreement in Principle (AIP)

A mortgage agreement in principle (AIP) is an informal agreement by the lender to give you a mortgage if you qualify. It is like a preview of whether you can qualify for the loan and how much money you can get.

AIPs are free and last for 60 to 90 days. However, the lender may perform a hard or soft credit check when reviewing your AIP request. Notably, frequent hard credit checks can affect your credit score, so it is important to review a lender’s requirements before applying.

5.      Mortgage Broker

Consulting a mortgage broker can help make the application process easier. The broker can help you compare and find mortgages with the best interest rates, fees, and terms. They can also help you prepare for your application by offering financial advice and leveraging their networks to ease the requirements.

Good Luck!

Applying for a mortgage is easier said than done. Fortunately, considering the five factors discussed here can improve your likelihood of qualifying for a mortgage. As such, prepare well and consider consulting a broker to guide you through the process. Good luck!