As a first-time buyer entering the housing market, there’s a huge low that you won’t really know about how to apply for your mortgage. There are a lot of aspects that can cause problems for applicants and even end up in you losing out on the house that you want. We Buy Any Home have investigated the issues that first-time buyers can run into when they apply for their mortgage and how you can take some steps to reduce the risk of being declined by your lender.
A common reason that mortgage applications receive a rejection is down to the amount that you’re applying for being too high when compared to the amount that you currently earn. The general rule of thumb is that lenders offer around 4-5x your yearly income for your mortgage, so if you’re looking to apply for something that’s much higher than this, you stand the chance of being turned down.
If this is going to be an issue when you apply, you can either look at moving forward with a smaller mortgage or if you’re expecting a dramatic change in your income, you can wait and reapply when it has been increased.
Bad credit can be a massive problem when you’re looking to apply for a mortgage and is something that you might not even have realised is an issue if you don’t check your credit regularly and look to improve it. There are plenty of reasons that your credit score is low, whether you’ve made lots of late payments and are experiencing problems with any previous debt or simply haven’t had your information properly updated, so you should make sure to run your own credit check before you apply for a mortgage, so you know where you stand.
There are several ways that you can work on improving your credit score, such as –
- Making sure that all of your bills are paid on time each month
- Being registered on your electoral roll
- Your address is correct
- Breaking any links that you may have to someone else with a poor credit score – this could be your spouse, or a family member, or even a friend if you share a bank account
- Paying off any existing debt in your name.
Improving your credit score is not a particularly quick fix, but if you’re aware that yours is fairly low, you can start to make these changes before you move forward and apply for a mortgage to reduce the chances of rejection.
Any debt in your name
Being in any sort of debt can cause a multitude of issues within your life and will act as a red flag for any mortgage lenders that you apply with. When you apply for your mortgage, you’re applying for a large loan, and they need to know that you’re capable of meeting the repayments. Having any existing debt will raise questions about your ability to both manage your money and pay it back on time, whether you’ve made any late payments or not.
If you’re currently dealing with some debt but you’re thinking of saving up to buy yourself a house, it’s generally much better to pay off any existing debt first and then begin to save afterwards. Long term, this will help you save more money faster, as you’ll have additional less interest to pay on your debt if you pay it back in advance, letting you save more in the future for you to put towards a house deposit.
A small deposit
The deposit requirement has now decreased again, and there are a number of specific mortgages that are on offer for any first-time buyers that sit around 5%, but a larger deposit will provide you with a lot more security when you apply for a mortgage.
Previously, a lot of lenders would have the option to offer you a 5% mortgage, which meant that your deposit was able to be a bit smaller and not cause that much of a problem for applicants. However, when the pandemic struck last year, the property market came to a complete standstill, and the minimum deposit across the board shot up to around 20%, leaving a lot of first-time buyers no longer able to proceed.
Payday loans can feel like a really quick and easy solution for anyone who is struggling short-term with finances, but they are a wildly risky option that you should be incredibly wary of. These loans show up on your credit file for up to 6 years after you’ve applied for them and will put off mortgage lenders almost immediately.
Even if you pay your loan back in full and on time, or even early, there will still be a record of it on your file and mortgage lenders tend to see this as a clear sign that you’re not in the position to make your mortgage payments in your current situation, which will result in a rejected application.
There are all sorts of reasons that a mortgage lender can reject your application when you submit it, but considering these points before you move forward will help to put you in a much stronger position and give you a better chance of being approved for your new home!