Found your dream home? There’s far more to getting a mortgage than simply putting a down payment on a house you like. Have a read to find out what else you need to do to have a smooth transition into the next stage of your life
Deposit
Obviously, you will need to have a sufficient amount of money to place a down payment on a house. The recommended minimum deposit size is 20% of the home’s selling price. We recommend budgeting and saving to help put money aside for this milestone
Avoid your overdraft
It can be worrying for lenders if you’re in your overdraft as it means that you may be unlikely to keep up with mortgage repayments. We recommend staying clear of your overdraft for at least 3 months before applying for a mortgage
Get your paperwork in order
The lender will likely want to see:
- the last 3 months of your bank statements
- the last 3 months of your payslips
- your latest p60 tax form (or the last 3 years of your accounts or tax returns if you’re self-employed)
- the last 3 months of your savings account statements to prove you can pay the deposit
- proof of your address (e.g, utility bills or credit card bills)
- proof of ID (passport or driving license)
Register on the electoral roll
Register on the electoral roll at your current address so that lenders can use its data to help identify you. This can make the process of identifying you far quicker for your mortgage application. It is also an easy way to score points for your credit rating!
Take care of your credit score
Try to avoid applying for credit for the 3 months prior to applying for a mortgage – applying for lots of loans likely reduces the amount that a lender is willing to let you borrow for your mortgage. It is also a good idea to check your credit report before applying to see if you have a good payment history. A good financial track record will make you far more trustworthy in the eyes of lenders.
You should ensure that you aren’t financially linked to people who may affect your credit. If you aren’t in contact with someone anymore, or are now separated, we recommend closing any joint accounts you may have with them. This means that their credit history is treated as separate to yours rather than being taken into consideration when you apply for a mortgage. To be extra safe, you may also want to write to credit agencies and ask for a note of dissociation
What can financial education help you with?
Financial matters are unavoidable – they dominate many aspects of our lives, but they don’t have to be defeating. At Red Star, we are dedicated to providing meaningful financial education to anyone who wants to learn to make balanced and calculated financial choices. This includes a whole host of things, such as:
• Debt management – helping you clear your debts at a manageable pace
• Budgeting – helping alleviate the stress of paying bills, create financial stability, and build up savings for emergencies
• Investing – giving you the ability to make informed and balanced investment decisions
• Planning for the future – helping you understand pensions and wills
• Understanding taxes – so you know what you need to pay and why
• Understanding mortgages and property purchases – so you feel comfortable moving into a new home
These things can be overwhelming, especially when there is so little formal teaching on them. The national curriculum stipulates that secondary schools must teach some financial education as part of citizenship and maths. However, the information given to pupils is lacking, with few schools effectively providing students with financial knowledge. Despite the fact that financial matters are an inescapable part of life, the government seems to expect us to face them unarmed, with very little prior knowledge. However, at Red Star, we believe that everyone should have the opportunity to become financially literate, in order to feel confident in managing their current and future financial matters.
The Difference between Wealth Creation and Financial Education
When people have excess money, they can start to build up savings. Wealth creation is when these savings are invested to create a new source of income. There has been a growth of groups and individuals promoting “get rich quick” schemes, espousing that money can be generated quickly through easy investments. Unfortunately, it is not this easy! A prime example of these schemes is forex trading, wherein individuals trade currencies by speculating which currency they think will fall in value against another. This is incredibly high risk, especially for those who have less money to gamble with in the first place. Investment always involves an element of risk, but this should always be calculated and manageable. Financial education provides you with skills that help you make these difficult decisions, rather than going in blind.
Financial education can indeed help create a foundation for future wealth creation, such as through teaching you how to minimise the risks that come with investing your money. However, it spans far beyond this; it offers you the ability to be self-sufficient and confident in facing financial issues in your day-to-day life. This covers all of the mundane things of ordinary life, like car insurance, taxes, mortgages, and the weekly food shop. It also extends far further to help you with future planning, such as setting up a business, pension funds, life insurance and making a will. As you can see, financial literacy is essential for most aspects of life. Although we wish we could, we can’t magic money out of thin air, but what we can do is help you feel confident in managing the money that you do have.