How to make sure your mortgage is approved

Despite the apparent increased availability of 95% mortgages, many potential home buyers will be refused a loan. Whilst banks and building societies have relaxed their lending criteria to some extent, those wanting a home loan will still have to pass certain tests of credit worthiness. 

house-of-moneyThere is evidence that an increasing number of mortgage applicants are being refused a loan because they have bad debts on their credit record. Lenders are refusing to say exactly what criteria they use to decide whether or not they will approve a loan because they believe people will cheat the system. They also get to keep the application fees, whether the mortgage application is successful or not! 

Even a relatively minor one-off lapse can result in a mortgage application being refused such as:

  • Missing a monthly payment on mobile phone or broadband or pay TV contracts. 
  • Going over an agreed overdraft limit. 
  • Failing to pay at least the minimum balance of credit cards. 
  • Even not having a credit card can count against you, as lenders may interpret this as an indication you cannot handle credit. 

What you should do:

  • Get copies of your credit rating from Equifax, Experian or Call Credit for a nominal fee. 
  • Cancel any credit and store cards you no longer use. Too many cards will look like you already have too much credit. 
  • Keep outstanding balances on credit cards to 25% of your total credit limits. 
  • ALWAYS make the minimum payment on all loans and credit cards. The more you pay off each month the better your score. 
  • Never take out any Payday loan. 
  • Never go over agreed overdraft limits! This can leave a negative on your credit file for up to six years. 
  • Make sure anyone else on the mortgage application has a good credit history too. 

Finally save as much as you can for a deposit. Not only does this show the lender that you are responsible and can budget and plan, but the more you can save for a deposit, the cheaper the loan will be. Those with a 10% deposit will save around 1% on a fixed rate deal compared to buyers who need a 95% mortgage.

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