Before any bank lends any money, especially when it comes to a mortgage, they’ll want to know a lot about your credit history and to determine whether or not you’ll be able to make the repayments. Learn more about the mortgage applications process and which criteria banks are likely to use to determine your eligibility with this guide.
The first thing that banks are likely to look at is how much money you can afford to pay back – and the very first question they’ll ask is: can you afford to pay back the amount you’re looking to borrow? You’ll need to provide details of how much money you earn, as well as how much money you pay out each month. Banks will then look at a number of different financial areas whilst deciding whether you can afford to pay back the amount you’re looking to borrow, including:
Income: the money that you earn each month from your job, from benefits or from overtime. Some banks will also consider things like inheritance and one-off payments. You also need to keep in mind that if your income changes from month to month, banks will take an average income rather than the month with the highest income. If you’re a freelance contractor or self-employed, banks will also look at your earnings over a three-year period – so if you don’t have three years worth of books, there may be a problem.
Household bills: how much money you pay out each month will also influence the bank’s decision. They’ll look at your outgoings, including all of your household bills – things like gas, electric, water, television and internet bills, as well as money that you use for things like travelling, entertainment and personal use.
Existing financial commitments: things like credit cards, store cards, maintenance payments and existing overdrafts and loans.
The bank will then look at all of this information to determine how much you’ll be able to afford. This might be consistent with the amount you were hoping to borrow, but it might not.
Your Credit History
Next, the bank will look at your credit history – it’s really the only way for them to know that you’ll actually be able to make your mortgage repayments. The first thing that the bank will look at is your existing accounts with them, if you have any. This will include things like whether you have made payments on time in the past and whether or not they have declined you for credit before. If you’ve had difficulty getting credit in the past, this is something you’ll have to address before you make your application. Make sure that you pay all of your bills on time and if you’re in debt with any company or credit account, bring your accounts into balance before applying – and keep making your payments on time for at least a year, otherwise, you might find that your application gets declined.
Banks will also look at the amount of deposit you have – this is really, really important. You’ll have to have a minimum of 5% in the current market but this could differ depending on your credit history and the amount of money you hope to borrow. Some banks will require you to have a deposit of 25%. The more deposit you have, the lower the interest rate you’ll pay and the more likely it is that you’ll get accepted for the mortgage. Save up as much money as you possibly can for the deposit and you’ll be in a much better position when it comes to applying.
The amount of deposit that you need will differ depending on the property that you’re looking to purchase. Most banks will be happy to accept deposits from your personal savings, as well as deposits made up of gifts from family and friends. Most banks will also ask for some proof of your deposit before you make the application to ensure that you’re actually in a position to go ahead with the mortgage.
Banks will lend against a variety of properties, but the criteria really differ from bank to bank. Some will be willing to lend against all properties, while others will only lend for bricks and mortar homes. Most banks will not lend against trailers, so this is something you’ll need to keep in mind. There is a minimum property value, too, and this tends to be set at around $40,000.
In order to apply for a mortgage, you’ll have to be at least 18 years of age. You’ll also need to be in permanent, full time work. If you’re self-employed, that’s fine, but you need to be permanently working. Those who are seasonal workers only, or temporary workers, will be unable to qualify for a mortgage – and this is simply because the bank has no guarantees that your income will be enough in the coming months in order to make your mortgage repayments. If you are a seasonal worker, look into getting a second job in the autumn or winter seasons so that you can provide the bank with proof of your income year round.
Each and every mortgage application will require you to provide full identification from your passport or your driving license. Some banks will accept other forms of identification, but be aware that you’ll need full and proper identification in some form in order to make the application – without it, you will be declined immediately.
Each and every mortgage application process is different, but virtually every bank will look at the areas mentioned above whilst processing your application. Arming yourself with this knowledge – and ensuring that your credit score is up to scratch – means that the whole process is likely to go much more smoothly.