If you are buying a home, it’s likely you will need a mortgage: a loan which you pay back in monthly instalments plus interest. As you hunt for the house of your dreams, you want to make sure you give yourself the best chance possible of securing enough money and the best terms possible from your mortgage lender.
It pays to be prepared, so we’ve put together a list of the top 10 factors that affect your mortgage application to boost your chances of loan approval.
Mortgage application process
Firstly, it’s useful to understand the mortgage application process so you can appreciate what lenders are looking for when deciding whether to approve a loan or not.
- Mortgage in principle
Your lender will pre-approve a mortgage amount for you (depending on later checks) so that you can house hunt with a figure to offer. Your income, credit rating, existing outgoings and the size of your deposit will all influence how much you will be able to borrow. Understanding the process and the costs involved are also really important, so get help from an expert sooner rather than later
- Find a house and make an offer
- Agreement in principle
This is very similar to a mortgage in principle but more detailed. The lender will carry out checks on your credit, income and the property you want to buy.
- Formal application
Once you’ve chosen a solicitor or conveyancer, you can make a formal mortgage application. At this stage of the mortgage application process, the lender requires several documents from you, e.g. ID, proof of income, and bank statements, Your mortgage eligibility will be thoroughly assessed, and a decision will be made whether to lend you the money or not.
- Mortgage valuation
The mortgage lender will instruct a surveyor to value the property and check for any serious defects impacting their risk to lend to you.
- Mortgage Offer
Assuming a successful mortgage application process, the lender will issue a formal mortgage offer. A copy will also be sent to your solicitor/conveyancer.
- Exchange and complete
Once everybody in the chain is ready you will pay your deposit to your solicitor and agree a date to exchange contracts and move in.
Top 10 factors that affect your mortgage application
Fundamentally, lenders want to lend money to people they believe will make their repayments. When they look into your credit history and finances, they are checking to see if you’ve got a track record of reliable finances… or not. With that in mind it pays to be prepared for their scrutiny and make their decision to approve your loan as easy as possible.
1. Credit score
Your credit history is an extremely important factor when it comes to mortgage eligibility. If necessary, improve your rating before approaching a lender by making payments/repayments on time; closing credit card accounts you don’t use; cutting financial ties with anyone who has bad credit, e.g. a shared bank account; not applying too often for credit.
2. Proof of identity
Make your lender’s initial checks as easy as possible by registering to vote. This simple act proves your identity and current address which is a big box ticked on the path to mortgage eligibility, and it boosts your credit score, too. Make sure your passport or driving licence is up to date as this will also likely be needed along the way.
3. Credit commitments
If you already have several credit commitments e.g. loans, credit card obligations, car finance agreements, your mortgage lender may be reluctant to lend more money. Consider your commitments and if you should cut down.
4. Job reliability
As mentioned, your lender wants to see that you are able to meet the repayment schedule. At least three months of payslips showing your earnings will help prove your income and that you can meet your payments.
5. Employment type
The type of job you have can seriously affect your mortgage eligibility. Your lender will be interested in whether you work full-time, part-time, are a freelancer or self-employed. If the latter two, they will almost certainly want to see evidence of income spanning a couple of years (e.g. your tax return) and several months’ worth of bank statements to check your income in reliable
6. DTI (debt to income ratio)
Leading from the above, your lender will be interested in your DTI, looking at how much of your income already goes to paying off debt. It is calculated as a percentage and the lower this score, the better.
7. Deposit size and LTV (loan to value) ratio
The bigger your deposit the better your chances of securing a favourable mortgage. You are showing the lender you are able to manage your money, are seriously invested in the property, and don’t need to borrow as much in the first place. Similarly, the LTV is also important i.e. the percentage of the property value you are putting upfront (deposit) compared to the percentage you want to borrow. Lenders are more likely to approve a low LTV mortgage as their risk is reduced. They are more likely to recoup their costs if you fail to meet payments and default.
8. Property type and condition
If the property you want to buy is in poor condition or has potential problems e.g. structural issues, your lender may be reluctant to approve a mortgage. This is because they view it as an unsound investment: the property may need expensive repairs, the value may be affected and they may not recoup their money if you default and they take possession of the property.
9. Mortgage type and lender criteria
Different lenders simply prefer to lend on their terms. They will have their own set of criteria for customers and may like one kind of mortgage over another e.g. fixed rate, interest only etc. It is worth doing your research and speaking to anIndependent broker who can help you find the best lender for your needs.
10. Buyer schemes
If you plan to make use of a scheme, e.g. shared ownership, be aware that lenders may assess your application differently. Some lenders simply won’t consider your loan application, others will deem it a higher risk, and you may face higher rates because of this.
How long does a mortgage application take?
The average time it takes to complete a mortgage application in the UK is two to six weeks. However, as with almost everything in the house-buying process, this is a rough average and it can take longer.
The amount of time it takes to complete the mortgage application process depends on many variables including your chosen lender, the property you want to buy, and all of the points raised above. To speed up the process, make sure you have all your documents in order, have the best credit score possible and are realistic in your expectations.
Find out more
We hope this guide to the 10 factors influencing your mortgage application has helped answer some questions as you plan your next move. If you need any further advice, please don’t hesitate to get in touch. We are here to help.
YOUR HOME MAY BE RESPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.