Obtaining a mortgage is proving a significant challenge to home buyers in the current climate. The economy remains problematic and this has enormous implications for the housing market. One issue is that mortgage lenders lack faith in borrower’s capacity to repay their mortgages. Moreover, the cost of living is going up but at a faster rate than pay, thus many people’s money is not going as far as it used to.
It is not impossible to obtain mortgage approval; as long as borrowers take the following 5 considerations into account:
1. The Size of Deposit
This is one of the basic elements of applying for a loan and purchasing a property. Lenders want to see borrowers offer a substantial amount of their own money to put towards a property. It demonstrates financial stability by confirming the ability to save, and displays a commitment to taking on the debt and responsibility inherent with taking on a mortgage.
The size of the borrower’s deposit will impact how much monthly payments are likely to be required. Similarly, the interest rates attached to a smaller deposit, for example 10%, are likely to be higher than if a borrower can afford a deposit of 15%. Whilst it may take longer to get on the property ladder, a bigger deposit will always save borrowers money in the long term.
2. Provable Income
A mortgage borrower does not have to be earning a six figure salary to demonstrate financial stability. However, the higher the salary, the more positive lenders will be towards the prospective customers. A higher salary suggests more disposable income and flexibility when it comes to putting money away for savings, which is always a challenge in the current economic climate. With the rising cost of living, many first time buyers struggle to put substantial amounts of additional funds towards a deposit.
3. Maintain a Clean Credit History
Having a good credit history is one of the most integral parts of the mortgage approval process. Having a good credit score shows the ability of prospective clients to handle their finances. A poor credit score can mean that higher interest rates will be charged, given a smaller credit limit or even rejection of the application. Credit history can be improved by showing a lender that you are a responsible borrower, which might mean taking a credit card to demonstrate a history of meeting credit obligations. In the case of taking credit cards, it is recommended that only small amounts should be spent and balance cleared in order to avoid being charged interest. This has to be done for at least six months to ensure positive results.
4. Ensure Reasonable Borrower Requirements
When applying for a loan, borrowers should be honest with their lenders about what they are looking for and realistic with their expectations. This often means that prospective borrowers need to re-evaluate and scale their requirements to fit an affordable price bracket. Thus, when an applicant is being realistic with what they are asking for, lenders are more likely to approve a loan.
5. Understand Lender Risk Appetite
Lenders expect full disclosure from all mortgage applicants. In order to evaluate the risk, lenders want to have as much information about an applicant’s financial position as they can.
However, some applicants do not have a completely clean financial record. In such circumstances applicants should pay off what debt they can, and secure the remainder on an affordable repayment scheme.
By having an understanding of these areas, a borrower should be able to prepare themselves thoroughly when applying for a loan, thus stand themselves a better chance of securing a mortgage.