Looking to buy a home? You need to secure mortgage pre-approval with an Agreement in Principle before you can take any further steps towards your dream.
Getting pre-approved for a mortgage with an Agreement in Principle is very straightforward, and it is one of the most important initial steps you must take as you slowly begin to clamber onto the property ladder. It’s a simple process, but it’s important that you have everything in order before you begin, to improve your chances of being pre-approved and getting that all-important green light to begin applying for a mortgage.
Here at The Mortgage Brokerage, we’re experts on the pre-approval process and have helped hundreds of prospective borrowers to secure an Agreement in Principle. That’s why we’re here today to share our top tips with you on how to best approach securing mortgage pre-approval.
How to improve your chances of being pre-approved for a mortgage
What exactly is mortgage pre-approval?
A mortgage pre-approval is a document that verifies your eligibility for a mortgage loan.
A lender will assess your credit report and review the necessary documents in order to verify your income, assets and any debts. The pre-approval document you will receive is called an Agreement in Principle (AIP) or a Decision in Principle (DIP). It is non-binding and is designed to reveal how much a lender is willing to loan you, and what sort of mortgage you could receive, subject to their criteria.
Your pre-approval document gives you the green light to begin shopping around on the property market, enabling you to approach property sellers with a document in hand that states you have the funds to make an offer on the property.
Below, we’ll walk you through a handful of important steps that you’ll need to take in order to secure pre-approval.
1/ Obtain your credit score!
It’s important to know where you stand before you approach a lender for pre-approval.
We recommend a credit score of at least 620 in order to give you the best chance of qualifying for a mortgage. If you have a higher score, even better. You’ll qualify for better rates. It’s best to pay attention to your credit score and try to get it as high as possible before you enter into the process of buying a home.
There are, however, some lenders who specialise in working with borrowers who are plagued by a poor credit score, so there are always options if you have a history of bad credit.
How to improve your chances of being pre-approved for a mortgage
2/ Go over your credit history with a fine-toothed comb!
We recommend requesting copies of your credit reports and taking steps to dispute any errors. Any issues or discrepancies should be resolved with creditors before you apply for pre-approval.
3/ Calculate your debt-to-income ratio!
This is the percentage of your gross monthly income that goes towards any debt payments. This can include credit cards, car loans, student loans and the like. Most lenders prefer to work with candidates who have a DTI of 36% or below, including the prospective mortgage payment.
If you find that your monthly debts are far higher than this, you may need to take action. Consider refinancing, moving onto an income-based repayment plan or look at ways to pay down your debts more before you become saddled with a mortgage.
You can use an online debt-to-income ratio calculator to help you estimate your DTI.
4/ Gather any necessary information!
Now it’s time to begin gathering information on your income, financial accounts and personal circumstances.
You’ll need to compile things such as your current address, employment details, National Insurance Number and proof of income. If you have a co-borrower, you’ll need their details too. Don’t forget about information for any bank or investment accounts, too.
Bear in mind that if you are self-employed, you will likely need to get your hands on two years worth of Income Tax returns.
How to improve your chances of being pre-approved for a mortgage
5/ Consider working with a mortgage broker!
Before you apply for a mortgage pre-approval, you may wish to speak to a professional mortgage broker.
A broker can take stock of your personal circumstances, embarking on a thorough fact-find that takes into account your finances, lifestyle and any personal commitments. This fact-find will help you to assess which mortgage products are available to you and will highlight any potential areas of concern that may create barriers between you and your pre-approval.
Here at The Mortgage Brokerage, our detailed knowledge of the mortgage market means we can provide you with the very best possible advice in order to ensure you secure that all-important pre-approval.
Looking to secure pre-approval for a mortgage? We can help. Contact us today.
