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17 Jun 2018

12 tips to ensure your first mortgage application gets approved

Find out how to strengthen your mortgage application

Over three-quarters of first-time buyer mortgage applications were approved last quarter. But how can you make sure you're one of the success stories when applying for your first home loan?

In the first quarter of 2018, 76% of first-time buyers who applied through a broker or intermediary were offered a mortgage, figures from the Intermediary Mortgage Lenders Association show. By contrast, two years prior, just 48% of first-time buyers were approved.

To some extent, getting approved for a mortgage is up to the lender - but there are steps you can take to improve your odds.

Below, we round up the top tips for ensuring your first home purchase goes smoothly.

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1. Understand how much you can afford

Before you even start house-hunting, it's important to work out how much you can realistically afford - there's no point making an application that the lender is just going to reject.

The higher the deposit you put down, the less you need to borrow, andyou could unlock better interest rates by buying at a lower loan-to-value ratio. So it's worth gathering as big a deposit as possible.

The lender will also consider whether you can afford to meet your mortgage repayments, taking into account your current income and expenses. As a general rule, you can borrow four-and-a-half times your income.

Use the calculator below to work out how much you could realistically borrow:

2. Check your credit score

Aside from affordability, lenders will also want to know how creditworthy you are, and one of the things they'll check is your credit score.

Your credit score can be affected by a huge range of factors, from the way you pay your bills to the amount you put on your credit card each month.

Most people don't think much about their credit score until they need to apply for their loan - and might be in for an unpleasant surprise. So it's worth checking your score well in advance of applying for a mortgage.

If it's worse than you thought, you may need to spend some time building up good credit history before buying. It's also worth checking your credit report for any errors and having those corrected.

3. Apply for a mortgage in principle

A mortgage in principle is an agreement from a lender to give you a set amount - in theory.

It shows that, based on your current circumstances, you're able to secure finance. In a competitive market, sellers may be much more willing to accept your offer if you have an agreement in hand.

Once you find the home you want to buy, you'll still need to make an application, and the lender will take into account the specific property, as well as any changes in your circumstances.

4. Work out your eligibility for schemes

There are a number of schemes out there to help first-time buyers purchase a home. While offering a helping hand to aspiring owners, most of them come with exceptions that you should make sure you fully understand.

If you're planning to use a Help to Buy equity loan, for example, you can only buy a new-build property. It also has to be worth less than £600,000.

On the other hand, a Help to Buy Isa doesn't need to be used just for a new-build to earn the bonus, but the property must be worth less than £250,000 (or £450,000 in London).

Affordable housing schemes, meanwhile, tend to have their own rules, with many requiring you to live in your local area. So check what's required and whether you qualify before relying on these schemes as a leg-up.

5. Stay in your price range

It's one thing to do your homework before house-hunting. But with your dream home on the line, you may be tempted to make a higher offer just to beat out the competition.

Make sure you stay within the range of your mortgage in principle, or the range you've previously worked out that you can afford.

Also, ensure you're not overpaying. Lenders want to make sure that the home you're offering as security is worth the loan amount.

If you offer too much, and the lender decides the house isn't worth that much, they may not grant you the loan.

6. Update all your address details

Getting a mortgage involves a mountain of paperwork, and lenders tend to check every last detail.

Any discrepancies - for example, if the address on your driving licence doesn't match the electoral roll - could result in your application being delayed or even rejected.

For this reason, it's worth checking every piece of evidence you're planning to submit and making sure all your details are updated and correct.

7. Have evidence of your deposit

The lender will want you to show evidence of your deposit - and you'll also need to show where it came from.

If you've been saving up, lenders will want to see evidence of a savings pattern, including at least three months' worth of bank statements (and often much more).

If you've been given the deposit as a gift, you'll need to provide a letter from the donor.

Beware of gifted deposits that are actually loans. If your parents expect you to pay back the deposit, the lender may treat this as a debt and factor it into your affordability.

8. Know whether your family can help

If you're struggling to get approved for a loan, you might want to ask for help from your family.

It's worth investigating your options early, so that you and your family don't need to scramble to make a decision at the last minute.

A few potential options are guarantor mortgages or offset mortgages. Both come with risks, so sit down with your relatives to work out exactly what they are and aren't comfortable doing.

9. Budget for solicitor fees and application costs

While the deposit is often the biggest hurdle when buying a house, you'll also need to budget for all the other expenses of buying.

Some mortgages have application fees, which could be as high as £900, while you may need to pay a fee to the broker.

Your solicitor fees will also need to be paid, as well as the costs of having a house survey done.

10. Factor in stamp duty

Since November 2017, first-time buyers have been granted a stamp duty exception in certain circumstances - namely, if the property they're buying is worth less than £300,000.

If your property costs between £300,000 and £500,000, you'll pay just 2% on anything above £300,000. But if the property costs more than £500,000, you'll pay stamp duty at the normal rates.

The rates are slightly different in Scotland and Wales.

Use our stamp duty calculator to work out whether you're likely to face a tax bill.

11. Be prepared to pay your exchange deposit

Your offer has been accepted, your mortgage application has been approved and contracts are being exchanged - you're almost there!

At this point, you'll often be asked to provide an exchange deposit, usually 10% of the property price. Generally, this will be the deposit you've saved up to secure a mortgage.

The difficulty comes up when you've taken out a 95% mortgage, but the seller expects a 10% deposit. You may need to negotiate for a smaller deposit on exchange.

If you pull out after you've exchanged contracts, you may forfeit your deposit. So if you make it to exchange, make sure you're in a position to go through with the sale.

12. Consider using a mortgage broker

As a first-time buyer, it can be daunting to navigate the mortgage process and find the best deal.

A mortgage broker can help you find the right mortgage deal for your circumstances, and help you submit the best possible application.