Credit and overdraft affect mortgage application?

Aelwa

I'm aiming to apply for a mortgage in the next few months, the sooner the better due to exorbitant rent! I have a large deposit provided by relatives but need to save up around £8k for stamp duty, fees etc. I currently have an overdraft that I use (I'm pretty overdrawn and have had a couple of unauthorised uses going £20 or so over my limit) and a credit card that I use regularly (I don't always pay it off in full each month but have no missed minimum payments). I know mortgage providers now want three months worth of statements.... so:

1) do I need to pay off my overdraft and credit card then not use them for 3 months in order to get a mortgage?

2) my credit card limit is higher than I need (£4700) - will this count against my application?

3) My deposit will be large (looking at 65% LTV) so would having a big deposit help my application?

4) I did check my experian score recently and it's really good (over 90%) - would that help?

I'm trying to establish how long I need to wait/save for before I can apply as I obviously don't want to apply too early and be turned down, as I believe this would lower my credit score?

Any advice would be greatly appreciated, thank you!

mboo29

I'm sure someone will be along soon to advise.

blenz101

Your mortgage will be based primarily on affordability criteria i.e. how much your income is vs your total outgoings. This will be stress tested to see if you could still afford to repay the mortgage if rates were to rise significantly.

If you apply with an outstanding CC balance the repayment of this balance will be taken into consideration in the assessment of your monthly committed outgoings; it will be treated no different to a mobile phone contract, netflix subscription or childcare costs.

If you are struggling to live within your current overdraft at first glance, with no other details of your income or outgoings, I suspect most lenders will not look favourably on your application until you can demonstrate your current account is in good order.

If the deposit is a not a 'gift' please be aware that the repayment of this will also be taken into consideration.

How do you plan to save £8k if you don't have enough income to stay within your current account limit? Also be aware that moving will incur significant other costs such as legal fees, surveys and removals to name but a few.

Malmo

1) do I need to pay off my overdraft and credit card then not use them for 3 months in order to get a mortgage?

Not necessarily, no. Any outstanding credit commitments will need to be declared to the broker / lender and each one will need be marked either as (a) fully repaid or (b) not fully repaid, on or before completion. If (b), then the commitments will be included in affordability calculations as an outgoing.

2) my credit card limit is higher than I need (£4700) - will this count against my application?

Depends on the lender's view of available credit versus income. What is your gross income? If the ratio is high i.e if you have high available credit compared to income, that makes you potentially a high risk customer.

3) My deposit will be large (looking at 65% LTV) so would having a big deposit help my application?

Yes, you would have access to the better rates, but only assuming everything else is fine criteria wise. You will need to declare that the deposit is a gift, not repayable and your relatives do not hold any financial interest in the property.

4) I did check my experian score recently and it's really good (over 90%) - would that help?

No, it won't. Scores generated by Credit Reference Agencies are marketing features that lenders do not see or use. Ignore the score and focus on the actual data held by the agencies.

Unauthorised use of your overdraft will count against you, but it won't completely preclude you from finding a lender. Engage a whole of market broker who knows what they're doing and do not apply directly to lenders without first understanding their criteria and whether or not you have any chance of acceptance.