As with any loan, there are criteria you must meet in order to be approved for a mortgage. These tend to vary from lender-to-lender.
Here, we explain some of the main qualifying factors for getting a mortgage, what lenders usually look at before they make a decision, and what you may be able to do to improve your chances of being approved.
Lending criteria differ across lenders, but there are a number of elements that are likely to be taken into consideration, no matter which one you go to. Things such as minimum and maximum loan amounts, type of loan, property type, repayment type and Loan to Value restrictions can all vary from one lender to another, so be sure to check these with the one you choose.
When applying for a mortgage you must be 18 or over – this is a legal requirement. Beyond this, there can be a vast range of personal factors individual banks and other lenders will consider before granting you a mortgage, we discuss many of the factors below.
In very simple terms, a credit score reflects how likely it is that you will repay your loan; the better the score, the more likely it may be that you will be approved for a mortgage.
Banks and other lenders are highly likely to check this as part of your mortgage application and a poor credit score can be one of the most worrying factors when applying for a mortgage, but there are things you can do which should help to improve it.
It’s worth obtaining a credit report from Credit Reference Agencies such as Experian and Equifax to assess your current status and, if things aren’t looking great, there are small steps you can take to help improve it.
Closing any credit card accounts you no longer use is a great place to start, and joining the electoral register is often seen as a positive, so get signed up if you aren’t already!
There are two types of ‘deposit’ involved in a property purchase, a mortgage deposit and an exchange deposit. You pay an exchange deposit when contracts are exchanged. Your solicitor will usually ask you for this.
A mortgage deposit is the amount of savings you have to put towards a house. As a rule of thumb your mortgage deposit should make up at least 5% of the price of the house you’re looking to buy, but if you can stretch to more then you might have more choice of lender and mortgage product.
Your chosen lender will usually want to determine you have regular income coming in to cover your new mortgage repayments, and might look at a number of factors concerning your employment history.
This is likely to include how long you’ve been employed or self-employed and how much income you’ve earned over the last two to three years – you may also be asked about any pension and investment arrangements.
Be prepared to provide evidence of your employment history and proof of income (more on that below) with items such as payslips, audited accounts, pension statements and investment projection statements.
A major consideration when assessing your eligibility for a mortgage is your ability to meet the repayments. Proof of income usually forms part of this, and so you may have to show the lender your P60 to help demonstrate that you have a regular income, and earn enough to cover the value of your property.
It’s also likely you’ll be asked to show at least three months of bank statements so your lender can assess your incomings and outgoings, to demonstrate that you are not spending more than you earn and have enough money to cover your new mortgage repayments.
If you’re self-employed, proving your income can sometimes be a little trickier, as you won’t have a P60. Typically, you’ll be expected to show your lender at least 2 to 3 years of accounts and your tax return summary which you can download from the Inland Revenues site.
Hopefully that helps you understand a bit more about the criteria and the restrictions and what to do to help improve your chances. If you still have further questions, give us a call or check out the rest of our guides.
The material contained in this document is for information purposes only and does not constitute advice. You should obtain relevant legal or other advice if you are unsure about the effect on you of any matter in this document.