Buying a home isn’t a quick process – even if you immediately find your dream home and get your offer accepted, it’s likely you’ve been saving for your deposit for a few years.
If you haven’t been dreaming about credit scores and mortgage approvals, we’re here to give you a few tips on the top things you absolutely shouldn’t do in the run up to buying a home.
1. Buying items on finance
If you’re about to take out the biggest loan in your life (a mortgage) it’s usually best not to increase other types of debt beforehand. An increase in the number of monthly payments will skew your affordability in the eyes of a lender when getting approved for a mortgage. Similarly, the more money you owe, the more your credit score will be impacted.
Long term, of course, credit use is good for your credit score but think about whether you can make do without that new phone/car/laptop with the hefty repayments until after you’ve bought your dream home. Even on 0% finance deals, an extra monthly expense will impact your affordability.
2. Forgetting about unpaid bills
It happens – a final bill when you’ve changed suppliers, the extra £3 on a phone bill, things get forgotten sometimes. But even if it was a long time ago, those payments can appear on your credit score and stand in the way of you getting your mortgage. It’s worth following up on any unpaid bills before they suddenly turn up on your credit score.
Even after you pay off a debt, your credit score can take months to repair itself. At best, you’ll potentially lose out on better mortgage rates and end up paying more for your mortgage. At worst – you won’t be approved and you’ll lose the purchase.
You can check your credit score on Experian
with a free trial – this will tell you if you have any unpaid bills, and help you improve your score in other ways.
Learn more about how to improve your credit score
3. Starting a new job
It may seem counter-intuitive, especially if you’ve moved for a better salary, but starting a new job right before buying a home can cause problems. Most lenders want to see stability in your job, ideally having been there for a year. At the very least they usually want 3 months’ worth of pay slips. Partially this is because if something were to happen, the most recently hired are usually the first to be fired. Or if you have a three month probationary period, you may be at higher risk of losing your job.
Often this isn’t a huge issue and you’d need to present your offer letter and at least one pay slip, but if you have been in the same job for a while and you are considering a career change, it might be worth waiting until after you secure your mortgage.
4. Spending on your credit cards
Similar to buying on finance, showing you rely heavily on credit cards can make mortgage lenders look twice. There are three things to consider when it comes to your credit card usage – how much are you repaying each month
, what is your total debt
and what percentage of your credit allowance are you using
Paying off the minimum amount each month may show that you don’t have huge outgoings, but it’s going to take you longer (and cost you more) to pay it back, meaning you will have more debt. Try to pay off more than the minimum on a direct debit. If you can pay off a lump sum before you apply for your mortgage, it may help you get better deals.
Your credit limit is an allowance – when a bank gives you a limit of £8000, it shows they trust you with that amount. However, the more you use, the more it shows dependence on credit. You want to make sure your usage is below 50%, but the lower the better. Having a higher limit shows you are trusted, but using a minimal amount shows you are a responsible credit user.
Top tip: If you have old credit cards that you no longer use, make sure you close the accounts. Paid off and closed accounts can improve your credit score.
5. Bad budgeting
When you make your application, you’ll be asked for at least three months of bank statements. This is so mortgage underwriters can assess your spending and the general health of your accounts. If you are frequently falling into your overdraft, amassing charges and bouncing direct debits, it might be time to sort out a budget a few months before you apply. Show you are responsible with your money, and consider how your statement looks to a stranger (perhaps ask someone you trust too look over it as a third party). Non-stop online shopping, pub rounds or nights out might not look impressive if you often fall into your overdraft.
Work out a budget, think about making use of a savings account and if you want to be sneaky about it, take cash out for things like pub trips – at least that way there’s no potential judgement on what you’re spending your money on.
Some mortgage lenders might not be as detailed in their assessments but if you’re planning on being a homeowner, it’s important to know what you can afford in advance and giving yourself the best chance of approval.
There’s no downside to working out a budget!
Overall, when you know you want to buy a home the best thing you can do is financially prepare yourself. Making sure you look financially responsible and minimizing any unnecessary outgoings in the months approaching your purchase will help you impress lenders and secure a mortgage easily, with minimum stress.