Applying for your first mortgage can be nerve-racking to say the least. Not only are you bombarded with novel phrases like “tie-in period”, “valuation survey” and “standard variable rate”, but you also worry about actually being approved for a home loan in the first place.
There are five factors that have a big influence on whether you’re approved for a mortgage and, if you are, how big it could be. Thankfully, you can work on most of these factors to improve your standing, but you need to know what they are first.
Your credit score
Your credit score is the measure that banks and other lending bodies use to assess your trustworthiness when it comes to borrowing money. The higher your score, the better your chances of securing a mortgage. A good score also makes you more eligible for lower interest rates, so if your score could do with a boost, you should start working on it at least six months before you apply for a mortgage.
Your outstanding debt
Even if you’re diligent about paying off your car loan and credit card every month, these payments can make quite a dent into your income. A lender needs to know that you can make your monthly mortgage payments comfortably, so if you have a high debt-to-income ratio, you should get to work on lowering it.
Your employment status and income
What you do for a living is almost as important as how much it earns you. Mortgage lenders prefer to see someone in a stable job that pays the median wage rather than someone in an unstable or freelance job that pays big when the going is good. This is why freelancers sometimes have difficulty securing mortgages, as it may be harder to predict how much you’ll have coming in 12-18 months hence.
Your deposit
Your deposit is another big factor in your success – or otherwise – when applying for a mortgage. The bigger your deposit is, the more confidence your lender will have because they don’t have to lend you as much of the property’s value. You should aim for at least 10% of the value, although as a first-time buyer you may be able to get onto a help-to-buy scheme, some of which will accept deposits as low as 5%. Do try to raise as much of a deposit as you can, though, because this can qualify you for better interest rates.
The amount you’re looking to borrow
The size of the loan you’re asking for is also a vital factor when you apply for your mortgage. As you can imagine, the bigger the loan, the bigger the monthly repayments, the bigger the risk to the lender. If your home loan’s monthly repayments are set to be easy-to-comfortable, then you’ll have a greater chance of approval.
One handy tip is to use an online mortgage calculator to see how the amount you ask to borrow affects your monthly repayments. If you stay within your comfort zone, your lender is much more likely to approve you.
