How to Organise Your Finances Before Applying for a Mortgage

There are many things that the average person aspires to do. Top of that list for many people, and you too, probably, is homeownership.

If you are among the majority of people who may not be able to afford a home purchase without loans, then it is important to financially prepare yourself towards that time when you would have to applying for a mortgage.

1.   Put some money aside for your deposit

This is so that by the time you are finally ready to apply for your mortgage, you would have saved sufficient cash to get a good interest rate.

You will get better deals from more lenders the more of a deposit you have, so it’s well worth saving as much as possible for the best deal you can get.

2.   Obtain your free credit report

Unlike how inquiries from prospective lenders tend to lower the credit score, checking one’s credit report does not affect the credit score. Carefully study the report and check for errors so that in case of any, prompt rectification can be effected.

3.   Set up a reminder

This will help you to keep track of bills and debts due for payment. How promptly do you pay your utility bills? How promptly do you pay back debts incurred on your credit account? You are advised to pay attention to these aspects of your finances.

Also, a high debt-to-income (DTI) ratio, which in simple terms is the figure obtained when the total amount of debt due for payment in a month is divided by your monthly income.

It means that you may not be able to convince the lender to accept your mortgage application. Even if they do consider it, you may be getting your mortgage at a higher interest rate—and we don’t want that.

It is important to add at this point that while it is not advisable to approach lenders with debts already piled up on credit cards, it is equally an act of self-sabotage to have no credit history.

The fact is this: beyond all else, your lender wants to see evidence of your financial prudence and your earnestness in repaying debts. The only way to know this is by observing your credit history. Therefore if you don’t already own one, now’s the time to go open a credit account.

4.   Prepare a budget for your new home

Put into consideration such expenses as council tax and utility bills, cost of maintenance, and insurance. The total figure gives you an idea of whether or not the mortgage is within or beyond your means.

If the total cost exceeds 50% of your income, then you may need to consider opting for a less-costly mortgage.

5.   Get your financial paperwork reviewed by experts

Your tax returns for the last two years will be required from you. Are you an employee in a company other than your own? Keep your recent pay stubs, at least for two months handy as well.

Your credit card statement and bank statement will be needed when applying for Limited Company Director Mortgage too.

Work towards achieving these things and securing your mortgage will be a walkover.