Buying your first home and getting a mortgage is one of life’s big milestones that many people tend to aim for. It represents many things – financial stability, progression, maturity and it can be a great feeling when you can finally afford that new build that you’ve been dreaming about. However, securing mortgage approval is no mean feat and it often takes years of hard work, planning and commitment. Lenders, usually banks or building societies, consider many different aspects of your application when deciding whether to approve or deny it. In this article, we’ll discuss a few of the key factors that play a significant role in determining whether you’ll be able to get a mortgage.
How Much you Want to Borrow
Mortgage lenders want to know that the amount you’re borrowing is in line with the rest of your financial circumstances. It’s common sense more than anything, but if you’re asking to borrow £500,000 when you earn £20,000 per year – banks aren’t going to entertain the prospect for one second. The realistic amount that you may be able to borrow will depend on your individual or joint income, and the size of your deposit that you are able to contribute. Every mortgage provider will offer some sort of calculator on their website to help you work this out.
Your Income
As just mentioned, your income and employment status will play a significant part in your mortgage application. You may have heard stories of people struggling to get a mortgage whilst self-employed – this can be because lenders prefer stable employment when approving mortgages, but it’s not impossible to get one while self-employed. You’ll ideally need proof of at least 3 months of stable income, otherwise, the mortgage lender might be uncertain of your ability to make repayments.
Your Credit Score and History
A hugely important factor in the mortgage application process is your credit score and credit history. If you have a bad financial or lending history, then you are much less likely to be considered for a mortgage. This could be from missed payments, loan defaults, bankruptcy or high levels of unpaid debt which make you a less attractive borrower to banks and financial institutions. You should make every effort to reduce your existing debt before you apply for a mortgage because it can derail your chances of being considered and approved.
The Size of Your Deposit
Lastly, lenders are keen to see a decent deposit from you for a few reasons. Saving a house deposit takes financial intelligence and planning which is what they want from a borrower. Furthermore, a deposit is a security against the loan in case you don’t make repayments. The larger your deposit, and the lower your loan-to-value ratio (LTV), the higher the chance that a lender will approve you for a mortgage – but all the other factors need to be in place too.
