What Do Mortgage Lenders Look For? Your Guide to Mortgage Success
Our guide runs you through the key elements of mortgage eligibility so you can apply for your loan with confidence.
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Taking out a mortgage is a huge financial commitment, and it comes with inevitable concerns about what the best mortgage lenders look for when they review your application to assess your chances of approval.
In this article, we’ll help you understand the nuts and bolts of getting a home loan, whether you’re a first-time buyer, have a low credit score, or own your own business. With our guide, you’ll be ready to apply for a mortgage with confidence.
Key takeaways
- When you apply for a mortgage, your lender will assess your eligibility based on a number of key factors.
- Your eligibility can depend on things like your age, income, outgoings, employment status, and how much of a deposit you’re contributing.
- Mortgage lenders will check your credit score and history to see if you can repay the loan.
- You can get a sense of your eligibility in advance by using mortgage calculators, working with a broker, and/or obtaining a Decision in Principle.
What affects mortgage eligibility?
It’s important to remember that the mortgage lender is providing you with a large sum of money, which needs repayment. So, the core of mortgage eligibility is the lender’s confidence that you’ll be able to pay back the whole loan on time.
With this in mind, home loan providers usually look at the following:
- Age: You need to be over 18. Note that some lenders may not provide mortgages if you’re over retirement age.
- Salary: This includes self-employed earnings. Your salary needs to demonstrate a comfortable ability to repay.
- Savings: Lenders will look at any savings you have that might provide a financial buffer.
- Employment status and history: Lenders want reassurance that you can repay, so having permanent employment and a solid job history can help—or proving your self-employment can fund your repayments.
- Deposit: The size of your deposit may affect the amount you need to borrow to make up the cost of the property.
- Property type: Some property types, such as flats above shops, studio flats, or properties with short leases, hold higher risk for lenders, making them less likely to approve a loan on these.
What factors do mortgage lenders consider?
To break this down in more detail, let’s look at the different factors lenders consider.
Income
Your income helps lenders determine whether you’re able to repay reliably. Income can mean your salary, money you earn from freelance work or your own business, pension or investment income, child support, bonuses, or any other money you have coming in.
Outgoings
The lender will probably want to understand your spending to judge whether your income can cover your outgoings and the mortgage repayment as well. This will include regular spending on bills and subscriptions, as well as credit card repayments, food shopping, and insurance, among other things.
Employment status
A solid history of employment and a permanent job can make it easier to get a mortgage. That’s not to say you can’t obtain one if you’ve got a new job or are self-employed. However, you may need to provide stronger proof that you can afford your repayments. For example, a high credit score or bank statements that show you keep financial commitments.
Property and deposit details
Many lenders have restrictions on certain types of property, such as flats above shops or buildings with dangerous cladding materials. This aside, your lender will want to know the price of the property you wish to purchase and how much of a deposit you can contribute. The higher your deposit, the lower the loan will need to be to make up the property's value, which could make it more affordable monthly.
Your buyer status
If you’re a first-time buyer, you may be eligible to access particular mortgage deals. For example, some lenders accept lower deposits or may be willing to loan more. However, if your partner has previously owned a property but you have not, qualifying for first-time buyer mortgage deals will depend on the lender’s criteria.
Does credit history influence mortgage approval?
Because a mortgage is a form of credit, your lender will check your credit score to assess your suitability for the loan. There’s no minimum credit score for a mortgage in the UK, but the higher your current score is, the more likely you’ll be approved (in conjunction with other affordability factors like your earnings).
Lenders will probably look at 6 years of credit history. The history will highlight risk factors, like whether you’ve defaulted on previous loans or how many times you’ve taken out credit products recently.
Each lender will have its own risk tolerance and may consider your credit score and history differently from other providers. Even so, having a strong credit history and high credit score can be helpful, so it’s worth spending some time improving these before applying for a mortgage or a remortgage.
Even simple errors, like the wrong address on a bank account or payments listed as missed, can lead to a lower score, so taking the time to review your information using a credit report can be a great way to understand your eligibility.
What documents do I need to apply for a mortgage?
When you apply for your mortgage, you’ll need to supply certain documents, usually including the following:
- Proof of ID: You must submit an official document like a valid passport or driving licence.
- Proof of address: This could be a bill or bank statement with your name and address included.
- Evidence of your deposit: You’ll need to prove your savings. This could be a bank statement showing the amount in your account.
- Proof of income: You should submit bank statements and/or payslips to prove your regular income.
- Proof of self-employed income: If you’re self-employed, your proof of income may differ. If you own a business, you may need to provide accounts showing 5 years of income.
- Current mortgage: If you’re remortgaging, you’ll need details of your current mortgage.
How do I test my mortgage eligibility?
There are a few different ways to understand your mortgage eligibility. It’s important to note that none of these methods guarantee a lender will agree to a mortgage. Each provider will assess your final application based on its own criteria.
To test your eligibility, consider the following:
- Use an online calculator: A simple online tool (such as MoneyHelper) can estimate how much you could borrow based on your earnings and outgoings.
- Check and compare available offers: Many lenders have their own mortgage calculators. These ask for some basic information, such as your income, desired property value, and the size of the deposit. Most will give you an indication of monthly repayments as well as interest rates.
- Seek a Decision in Principle (DIP): This is also known as an Agreement in Principle (AIP). You can get this from a mortgage lender before proceeding with your property purchase. You’ll need to provide details of your circumstances and how much you want to borrow. The lender will then carry out a soft credit check (which doesn’t appear on your credit history).
- Work with a mortgage broker: A professional broker may be able to assess your circumstances and advise you on eligibility for potential lenders.
If you’re remortgaging, it can be important to explore offers from different lenders before making a decision, as you may be able to lower your monthly payments with a more favourable rate.
FAQs
What red flags do mortgage lenders look for?
Factors that make a rejected application more likely include a low credit score, high levels of existing debt, low earnings, a low deposit amount, and a patchy employment history.
Do mortgage lenders look at credit card statements?
Mortgage lenders don’t usually look at credit card statements, but they will check for evidence of credit repayment on your bank statements and look at your credit score, which will reflect missed payments. Additionally, they’ll need to know your overall levels of debt.
What expenses do mortgage lenders look at?
Mortgage lenders will look at your outgoings. This can include your regular spending, like food, energy bills, and transport, as well as things like gym membership, subscriptions, child maintenance, insurance, and credit card repayments.