How to Prepare your Finances for a Mortgage

If you are looking to buy your own home and need to take out a mortgage it is wise to make sure that your finances are ready. This is because there will be a big assessment made by the lender and they will look into your finances to make sure that you are capable of repaying the loan. Specifically they will look into the amount that you earn and base the amount that you are lent on that. They will also look at how much disposable income you have to see whether you can afford the repayments. This is the amount of money that you have left each month after paying your bills. You will also be expected to save up a deposit, meaning a lump sum of money that you will pay towards the property when it is bought. If there are two of you buying the house together then it is wise for you both to be aware of getting your finances ready. There are quite a few things that you might need to do to make sure that you are all ready for applying for a mortgage.

– Save up for a deposit- saving up for a deposit can seem like a really daunting thing, but taken step by step it does not need to be too complicated. You need to start by working out how much the deposit will need to be. The lender will normally want you to save up around ten percent of the cost of the property. You will probably have an idea of how much you want to borrow but if not, you will need to calculate how much you can borrow and then see whether you want something of that value or less. The lender will have their own way to calculate how much they will lend for a mortgage but it is normally around 3 x times the borrower’s annual salary. It can be wise just to try to save up as much as you can as the more that you can pay towards your deposit, the less you will potentially have to borrow, which will mean that your mortgage will be significantly cheaper.

– Be in a good job – it is important that when you apply for a mortgage that you have a permanent job that you have held for at least 3-6 months so that you are no longer working in a probation period. The more secure the job is the better as far as the lender is concerned. The salary that you get is such an important part of their calculations as to whether they will lend you money and how much they will lend you. It could be worth considering whether you should try to get a better paid job while you are saving up for your deposit so that you are more likely to be able to borrow money and are able to borrow more.

– Check your credit rating – it is possible to check your credit rating for free. This is something that lenders will do before they offer you money to see whether they feel you are a high risk or not. However, some credit ratings are incorrect and so you should check yours to see if it is correct. It is also worth looking to see whether you are likely to be approved for a loan and whether there is anything that you might be able to do to improve your situation and therefore get the loan approval.

– Make sure that you are not spending too much – as your bank account will be scrutinised by the lender then it is wise to make sure that it is as healthy as possible. Make sure that you do not go overdrawn or try to clear any overdrafts that you have. It is best to have some money left over each month and so you may need to reduce your spending so that you can manage this. It can be worth thinking about how you can spend less money as you may need to do this once you get a mortgage anyway so that you can cover the cost of the repayments. It may be a case of switching to cheaper products or cutting out unnecessary purchases.