Purchasing one’s first home is certainly one of the most exciting and memorable events in life.
However, it can also be a source of stress and confusion, particularly for those applying for their first mortgage.
Research from the Intermediary Mortgage Lenders Association revealed that almost a quarter (24%) of first-time buyers who used a broker or intermediary to help secure their first mortgage have had their application declined.
So, the question is, how can one avoid such a predicament?
It’s vital to have a solid understanding of the common mistakes, which can easily be overlooked by first-time mortgage applicants — so you can avoid repeating the same errors.
With that in mind, here are the common slip-ups first-time applicants tend to make and, most importantly, how they can be avoided.
Switching jobs
Having a varied career can be a great addition to one’s life, adding variety and purpose to your everyday.
However, mortgage lenders prefer consistency so applicants who switch jobs may find applying for a mortgage slightly more challenging.
A major aspect of a mortgage application is proving a reliable income stream of three to six months (at least) and switching jobs can break up your income history and add complexity.
That’s not to say those who have recently changed jobs will automatically have their application rejected – some lenders will still consider the application.
However, those still in the probationary period should conduct thorough research to find lenders who will consider lending to employees before the probation has been formally passed.
Not researching your options
Of course, when making a huge financial commitment such as buying one’s first house, doing your research is vital. The problem is many people are put off because they assume it is an inconvenient and time-consuming task.
Luckily, this is no longer the case. Comparison sites can gather information about numerous mortgage options, and present them to you in a clear, jargon-free table. This makes it much easier for first time applicants to review their options and see what kind of deal would work for them and how much it will cost them.
Getting the sums wrong
Mortgage lenders operate on various pieces of information: the size of your salary (added to your partner’s if you are buying together), your deposit and your affordability to comfortably repay the debt.
Your salary (single or joint) and the size of the deposit will determine how much you could borrow.
That may seem straightforward, but also ensure you have all the necessary paperwork to prove income.
Whether you are employed or self-employed, you will need it. Employed individuals will need to provide payslips, P60 and bank statements, and self-employed will need in the region of three years of accounts and SA302’s for each tax year.
Surprisingly it can take a little while to get evidence together so make sure you are able to get all of the necessary documentation in good time.
Misunderstanding the mortgage in principle
A Mortgage In Principle (MIP) sounds complicated, but in reality, it’s quite straightforward.
Put simply, it’s a statement by a lender on how much, in principle, they would loan you to buy a house.
Depending on the lender it can be called either Mortgage in Principle, (MIP), Agreement in Principle (AIP) or Decision in Principle (DIP).
A mortgage provider will provide you with one once they have received your main financial details, and it’s a really positive first step for a borrower. It also strengthens your position when you come to making offers on a house.
However it’s very important to understand this is not a formal mortgage offer. You will still need to complete and pass a full application, prove the income and affordability, and obtain the credit score they require along with other financial criteria.
A Mortgage in Principle will typically last between 60 and 90 days.
Not knowing your credit score
Whilst some first-time buyers might find credit scores intimidating, it’s not an issue to bury your head in the sand over.
A huge amount rides on your credit score and having a poor rating can hinder a mortgage application.
That’s not to say it’s impossible to get a mortgage with a poor credit score, but it can make the process a bit trickier.
Potential lenders will use your credit score as a way of understanding your past and present financial management of debt.
By understanding your credit score before seeking your first mortgage, you will be more in control of how successful your application will be.
And in some cases will be able to make some steps to improve it. For example, not being on the electoral roll can affect your score. So simply head over to one of the credit score firms such as Experian or Equifax to find out your score.
Not asking for help
If you find yourself struggling to understand any aspect of the mortgage application process, or you have a more complicated financial profile, you might benefit from consulting a mortgage adviser.
They can offer you tailored advice to help you assess all your mortgage options, as well as helping you to complete paperwork, explaining all costs involved and guiding you through the application process.
Whilst they may charge for their services, their expertise could save you a lot of time and stress if you were to try and muddle through the process alone.
John Ellmore, is director of Know Your Money, an independent financial comparison website, comparisons for a wide range of financial products, including mortgages.
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