They say, “Fail to prepare, prepare to fail!”
This maxim certainly applies to first-time buyers as they start to think about buying that first dream home. That’s why I want to help people who are new to home buying get their proverbial houses in order.
First things first, a lender will need to be able to find you.
They need to know where you are currently based so that they can check your financial background and worthiness. If you are not on the electoral/voters roll, I suggest you rectify that straight away and contact your local authority.
Be prepared to have to show a lender up to 3 months bank statements.
The lender wants primarily to check that the income on your bank statement matches your most recent payslips, but they will also want to make sure your financial wellbeing shows up well.
Lenders will not want to see a smattering of online betting company debits (yes, they can recognise the codes for those companies!).
Going over an agreed overdraft limit is not a good start to your intended financial new relationship, so really get to grips with your finances in the build-up to going for that first home.
They’ll also be looking to see there are no undeclared monthly financial commitments like maintenance payments or monthly childcare payments. These things can be easy to forget but it’s vitally important that you’re open and honest with your lender or mortgage broker when discussing your outgoings.
The mortgage market is driven by this idea of “affordability” now. Doing the best for you as a customer is about making sure that you’re going to be able to afford your mortgage and not put you under undue pressure.
Do I need an Agreement In Principle (AIP)?
Many new buyers ask “Do I need an approval in principle?”. And it’s a fair question.
Different estate agents or sellers take different stances here, so while you may not “need” one it can often be a good idea to get this sorted early.
Your broker or lender will need your last three years’ address history (so keep your records of when you move up to date), details of all your financial loans and commitments, the balance of your credit cards and how much you earn.
The AIP typically seems to provide estate agents with comfort that you can buy the property you’re offering on but a word of caution; an AIP is not a mortgage offer.
A mortgage broker will now need to prove all of the information submitted as part of your AIP and ensure that your circumstances meet that lender’s criteria.
Your circumstances may well mean it’s best to use a different lender to the one that the AIP was obtained with. And that’s fine, but remember, until you’ve actually got a mortgage offer then there’s still work to be done.
Obtaining a credit report
This isn’t a must but I would advise all first-time buyers, or anyone with any doubts about their situation, to do a credit report.
Companies such as Noddle and ClearScore offer these for free at the time of writing.
The search really will show you a snapshot of your financial health and wellbeing, and is a good way of making sure you haven’t got an unpaid parking ticket or unknown phone bill hurting your credit.
Sharing this information early with a good mortgage broker will help them find the best lenders for you.
Understanding your credit profile
The credit report is a good first step to really understanding your financial situation.
Importantly, don’t be tempted by payday loans (most lenders really don’t like these) or taking a furniture loan or any other loan out at this stage. It comes back to that idea about affordability and to ensure you don’t have too many credit commitments.
If you haven’t got a credit card, it is a good idea to get one but, vitally, use it sparingly and pay off the full amount owing at the end of the month. This will help build your credit profile.
Everything is about just keeping things very straightforward and organised.
Create a file to keep your most recent three months’ payslips, bank statements, credit card details, student loan details and of course your property details.
Doing so will really help whilst trying to get that mortgage offer for your first house.
Happy house hunting!