How does a lender decide whether to give you a mortgage offer?
A mortgage offer is your first goal when applying for your mortgage, knowing how a lender makes the decision on whether to give your application the green light (or not, as the case may sadly be in some cases) can help you avoid any financial pitfalls and give yourself the best possible chances of approval before you get underway.
In this article, we’ll take a look at some of the criteria lenders use when assessing your suitability for a mortgage as well as a few red flags that you’ll want to try and remove.
When a lender agrees to give you a mortgage, they take on a degree of risk. To help them understand your borrowing history and minimise this risk of missed repayments, all lenders will take a look at your credit score to see if you are a safe bet or have previously defaulted on any payments.
If you have any court orders or CCJs for non-payment of debt, these are often not looked upon too kindly. You’ll need to improve your repayment history before you apply for a mortgage, as being turned down is often a disappointing experience.
Earnings and financial responsibilities
Any good lender will take a look at your current earnings and financial responsibilities to ascertain if the mortgage repayments are affordable for you.
Although you may have already calculated the figures for yourself and believe that you can afford the monthly repayments, lenders often take into account variables such as the fluctuations in interest rates, job security and any other expenses that may increase or decrease as time goes on before coming to a final decision.
Most lenders will provide you with a mortgage interview to gain vital information on your current and future financial position. This means you can expect some questions about the future to factor into the process at some stage.
Questions such as the expectation that your income will fall or rise, your plans to leave your job or start a business or if you have any children or dependants are commonplace, so don’t be alarmed if you find these areas under the spotlight.
Another way that lenders gauge the affordability of a mortgage is to ask you about the essential expenses that you pay on a regular basis.
Examples of such expenses can include things like existing loans, credit card commitments, mobile phone contracts or car finance agreements. It is always best to be upfront and honest about your monthly outgoings as your lender may be in a position to offer you a different mortgage product that will help you balance your finances better and make a mortgage more affordable.
Our brokers are trained in giving mortgage advice, if you require anymore information give us a call.