Looking to buy a home? How demonstrating good payment habits can help. The following is a guest post from Prepaid Mastercard® providers, icount.
Dreams of owning a home can be found in many people’s plans for the future, however some express concerns about their financial situation getting in the way. Even those who have never had any debts of their own, worry about being refused that much needed loan to invest in their very own property.
A couple of years ago, changes to the mortgage application process resulted in applications being assessed much more strictly than they once were. Should you wish to borrow from a mortgage lender, you should prepare yourself for having your finances looked over with a fine toothed comb.
There are plenty of ways in which to prepare yourself before making that all important application, including being able to demonstrate good payment habits.
Here are a few considerations to make, from the moment you even begin considering buying a home, rather than just before making a mortgage application.
Spend time looking over your transactions over the past 3-6 months
The changes to the application process means that lenders are much more scrupulous when it comes to reviewing your transactions. Every payment is taken into account, including the cost of weekly food shops, monthly bills, childcare and money spent on day trips out, to name a few.
This part of the application process aims to assess your average monthly outgoings and whether or not as a borrower, you would be able to afford the mortgage repayments. The review goes even further, by taking your average monthly outgoings and working out whether you could afford any rises in interest rates, too.
As such, it’s imperative to begin by looking at your outgoings over the past 3 to 6 months, as soon as your consider buying a home. This way, you have plenty of time to make any changes to your outgoings that might be needed.
Start making any necessary changes to your outgoings
During the time between assessing your outgoings and applying for a mortgage, you should look to cut down on the amount you are spending, through removing any unnecessary outgoings.
Of course, you should still allow yourself the odd treat, but try to minimise your outgoings so that you consistently have money in your account, particularly towards the end of the month when balances often tend to be low.
It’s wise to keep up this frugal lifestyle for at least 6 months before making that all important application, as lenders tend to look at 3-6 months of transaction history when reviewing your situation. If you have a particular lender in mind, speak to a mortgage adviser who will know how far they look back at your transactions.
Never try to hide any transactions or lie about them when discussing them with a lender. This could leave you in a worse off state than you would have been by living a frivolous lifestyle.
Never miss a payment
If you have a credit card, overdraft or even contracts with a mobile phone provider, for example, missing a payment that you owe could seriously damage your chances of acquiring a mortgage.
Make sure you keep on top of these payments, even if that means simply paying the minimum amount due. However, if you can afford to, you should look at increasing any monthly repayments, to eradicate these debts as quickly as possible.
Making regular repayments can actually help build your credit score as well as proving to a lender that you can manage monthly repayments. Having this information to hand can improve your chances of having your mortgage application approved.
Could your credit score be better?
If you aren’t aware of where your credit score is at, consider looking into it within plenty of time before applying for a mortgage. If it could be improved, you’ll have the opportunity to do so, to improve you chances of being accepted by lenders.
Did you know? Being turned down for a mortgage can negatively impact your credit score. This alone makes it worthwhile taking the time to build up your credit rating before applying for your first mortgage.
A few ways in which you can build up your credit score are:
- Firstly, make sure you are registered on the government’s Electoral Roll, as without, you may have no credit history at all!
- Avoid applying for any other loans other than the mortgage itself, during the discussed timeframe.
- Try to have at least one contract that requires monthly repayments, and make sure you pay on time. This could be a gym membership, a phone contract or even a credit card.
- If you have concerns about signing onto a credit card, consider other options, such as a prepaid card. With these cards, you choose how much money you want to load onto the card, and can be used to everyday spending and to build your credit score at the same time.
iCount sponsored this post.
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Sometimes getting a mortgage can be ridiculous.
I have a friend who’s the owner and CEO of a medium sized corporation. He has trouble getting mortgages because he “does not have income”. But the thing is, the only reason he doesn’t have enough income is that he owns the company, so he chooses not to pay himself a lot!
Meanwhile, all of his senior employees have no problem getting mortgages for expensive houses.