How to Prepare for a Mortgage

When it comes to buying property, it isn’t as simple as handpicking a home that falls in line with your budget. In many cases, you must get “credit ready” before looking into various mortgage options.

To start off, you need to paint your borrowing history in a positive light so that mortgage lenders can work with you without hesitation.

Here are steps to help you prepare for a mortgage:

Registered Voter

  • Lenders need to confirm your postal address and for this purpose, you must be registered on the electoral roll. This also helps the lender track down your credit history when the need arises.
  • Unless you’re registered, it’s quite unlikely that the lender will process your application due to not having enough information.

Credit Applications – Be Selective

  • Too many rejected credit applications are going to look bad when you apply for a mortgage. This will 100% suggest to the mortgage lender that you’re simply not ‘credit worthy’ or that you’re desperately trying to get your hands on any mortgage you can find – which will raise a lot of eyebrows so as to whether you can repay your mortgage.

Take a Close Look at Credit History and Score

  • You should check your credit browsing history and score ahead of time. Lenders expect correct information regarding your ability to make mortgage repayments – therefore, you need to deal with any inaccuracies in advance.
  • Furthermore, a low credit score will reduce your ‘credit worthiness’ in the eyes of lenders. So before you make a mortgage application, determine what credit habits you can improve in order to bring up your credit score.
  • With that said, credit scoring bands may vary between credit reference agencies. Do your research or hire a Mortgage Advisor.

Cut Down Debt-to-income Ratio

  • As you might imagine, this is the ratio of debt in relation to your income. The higher your debt, the higher this ratio is.
  • Lenders will always prefer applicants with a lower debt-to-income ratio because this tells them that they are capable enough to make the mortgage repayments on time each month.

Eliminate Unnecessary Borrowing

  • Six months prior to taking a mortgage, it is never a good idea to open up new credit lines. This will inevitably increase the debt-to-income ratio, which again, will reflect adversely on how capable you are when it comes to repaying mortgage loans.

Don’t Close Older Credit Accounts

  • We don’t want to close these off because they can show lenders that, in the past, you have successfully made repayments over a certain time frame.
  • Inactive accounts, on the other hand, should be closed as that would indicate to lenders that you have a lot of credit lying around that you don’t need.

Pay Your Bills on Time

Before filling out your mortgage application, make sure that all bills are paid on time even if your credit history looks healthy.

  • Since borrowing records are persistent, any shortcomings in terms of bill payments might signal a red flag and cause the lender to cast doubt on your ability to make mortgage repayments.

Get Rid of Outdated Financial Associations

  • Your financial associations can negatively affect your chances of obtaining a loan. For instance, you may have had a financial association for paying bills with a separated spouse or a joint account with a former housemate.
  • You need to end this association because their borrowing habits in the near future might impact your credit applications.

Run a Check on All Joint Applicants

  • If it’s a joint mortgage application you’re making, the credit worthiness of everyone involved comes into play. Lenders are going to take everyone’s credit history into account before agreeing to offer you a mortgage.

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Do I need life insurance for a mortgage?

While not a compulsory requirement for securing a mortgage, it is a good idea to consider life insurance. Life insurance can help your loved ones and dependents to cope financially should you pass away. No one likes to think about death and what will happen to their family if they pass away, but when you have a mortgage to pay, it can help to provide some reassurance to loved ones.

What does life insurance cover?

Policies vary, but in general, life insurance will provide a lump sum or regular payments if you die. This money can then be used to pay off the rest of your mortgage, ensuring that your loved ones still have a roof over their heads. It can also be used to help with the cost of household bills, childcare and day-to-day expenses.

Do I need life insurance for a mortgage?

A lot of people think that you need to take our life insurance to be accepted for a mortgage. This simply isn’t true. While many mortgage providers will advise you to take our life insurance, it isn’t a requirement. For example, you won’t have your mortgage declined if you don’t have life insurance.

The only type of insurance that you require when taking out a mortgage is buildings insurance. Again, this isn’t technically a legal requirement, but it is often included as a condition of the loan. It will cover you in the event your home is damaged by fire, flood, storms or malicious damage. You need to ensure you have coverage from the date contracts are exchanged, as this is when the property becomes your responsibility.

Should I get life insurance anyway?

The question of whether you should get life insurance anyway really depends on your personal circumstances. If you are single and have no dependents, when you pass away, the lender will force your estate to sell the property to pay back the mortgage. In this instance, there would be no need to have insurance in place as there would be no beneficiary.

If you are married and/or have dependents, life insurance can give you some peace of mind that they won’t be forced to move house in the event of your death. You will be able to choose the level of coverage, so you could make it a lump sum that will cover the rest of the mortgage or regular payments that will allow your partner or dependents to continue paying the mortgage.

Is mortgage life insurance an option?

Another type of insurance which may be relevant to you is mortgage life insurance. This kind of specialist insurance is linked to your mortgage. It offers decreasing term coverage, meaning that as time goes by, the amount of payout decreases. This is because you will have paid off more of your mortgage. As a result, you will need a smaller lump sum to be able to pay the debt in full.

What about mortgage protection insurance?

There is another type of insurance called mortgage protection insurance. This helps to ensure you don’t miss payments in the event of long-term illness, an accident or redundancy. This type of cover helps to alleviate your worries that you could miss a mortgage payment and you could face repossession.

Most mortgage protection insurance policies will cover you for up to two years. They will also pay around 65% of your regular income. This doesn’t cover you in the event of death and the policy would end if you pass away.

If you aren’t sure if you need insurance, or which type of coverage is right for you, get in touch with our friendly team today. They will be able to advise you on the types of cover and which would be more suitable for your needs.