This is not always easy as lending large amounts of money is
always risky for a bank and they want to be 100% confident that you are going to be able to pay this back and on time. Make your dreams of owning a home a reality by following these top 5 tips to get a mortgage approval.
This is a tip that you probably will not want to hear, but it’s important. Timing is everything when applying for a mortgage and sometimes the best thing to do is wait until the economy improves. After the financial crisis, banks are far pickier with who they lend money to and waiting can allow for home prices and interest rates to fall if you are currently not having much luck in securing a mortgage approval. A fall in interest rates of just 0.5% to 1% can reduce your monthly mortgage payments by hundreds of pounds. This could be the extra boost that you need to qualify with a bank for a mortgage.
Reconsider Your Budget
No one wants to be a slave to their mortgage. If you are looking at homes where you are at the top end of what you could potentially be loaned, then you may want to reconsider your budget. If you don’t qualify for the mortgage that you want and do not want to wait for interest rates to drop, then why not instead set your sights on a cheaper property? Consider looking at a property maybe with fewer bedrooms or in a different neighbourhood. As your financial situation improves over time, you may then be able to move up the property ladder and get the property of your dreams.
Boost Your Credit Score
If you want to give yourself the best chance possible of getting a mortgage approval, then you must work on improving your credit score. You can find out your credit score online and work towards making this the best that it can be. This includes not going into too much debt, paying off credit cards on time and paying them off in full.
If you are young and have no credit history at all, then this can also hurt your chances just as much as someone who has bad credit. Open up a credit card account and place a small limit on this that you use each month and pay off. This shows lenders that you can be trusted to borrow and pay off your balance each month.
Manage Your Debt to Income Ratio
Before lending you money, banks will consider your debt to income ratio. To calculate this yourself, take your monthly total income before tax and then the total of all your monthly debt payments. This can include credit cards, car loans and so on. You then have to divide the monthly bills number by your income.
For example, if you have debts of £1000 per month and your income is £2500 per month, then the debt to income ratio is 40%. This is the ideal number for banks, so if your percentage is higher, you may want to look at paying down more debt and adjusting your spending.
Just because you have an account with one bank does not then mean that you automatically have to get your mortgage with them. There are plenty of great mortgage approval calculators online to give you a rough estimate of what different banks can offer you. While one bank will not lend you money, another might. Make sure to do your research beforehand and do not blindly apply for every mortgage that you can as lots of rejections can massively affect your credit score and prevent any banks from lending to you in the future.
With patience, time and hard work, you can massively improve your credit score to make yourself an attractive candidate for any bank. If you need more help with becoming a property owner, it can also be a good idea to look for a mortgage adviser who can help guide you through the process and find you the best deals on the market.