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Mortgage Lending Criteria Explained

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How to Meet the Mortgage Lending Criteria and Get Your Dream Home 🏠

If you are dreaming of buying your own home, you might be wondering how to get a mortgage that suits your needs and budget. Getting a mortgage is not as simple as applying for a loan and getting approved. You need to meet the mortgage lending criteria that lenders use to assess your eligibility and affordability.

Mortgage lending criteria are the rules that lenders use to decide if they can lend you money, how much, and at what rate. Different lenders have different rules, but they usually look at things like your income, expenses, credit score, age, property type and value, and deposit size. This blog post will tell you about some common mortgage lending criteria and how to increase your chances of getting a good mortgage deal. We will also give you some helpful tips and tools to find the best mortgage for you. Let’s begin! 😊

 

Income and Evidence 💰

Your income and how you show it is very important for lenders. It affects how much you can pay back each month and how risky you are for them. Lenders will usually want to see proof of your income, like payslips, bank statements, tax returns, or accounts if you work for yourself. Lenders will also look at the kind and steadiness of your income. For example, you might look more trustworthy if you have a permanent job, a steady salary, or a regular bonus or commission, than if you have a temporary job, a changing income, or depend on overtime or tips. Also, if you have more than one income, like rental income, pensions, benefits, or investments, you might be able to borrow more than if you have only one income.

  • Increase your income by asking for a pay rise, taking on a second job, or finding other ways to boost your earnings.
  • Reduce your expenses by cutting down on unnecessary spending, paying off debts, or saving more money.
  • Keep your income records up to date and organized. Make sure you have all the documents that lenders might ask for, such as payslips, bank statements, tax returns, or accounts.
  • Be honest and consistent about your income. Don’t exaggerate or omit any details that might affect your affordability or credibility.

 

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Credit History 📈

Your credit history is how lenders see how well you handle money and how likely you are to pay back your debts. Lenders will check your credit report and score from one of the three main credit agencies in the UK: Experian, Equifax, and TransUnion.

Your credit report has information like:

  • Your personal details, such as your name, address, date of birth, and electoral roll status.
  • Your credit accounts, such as loans, credit cards, mortgages, overdrafts, and utilities.
  • Your payment history, such as if you have paid on time, missed any payments, defaulted on any debts, or had any arrears or collections.
  • Your credit inquiries, such as how many times you have applied for credit in the last year and who has seen your credit report.
  • Your public records, such as if you have any CCJs, IVAs, bankruptcies, or DROs.

Your credit score is a number that shows how creditworthy you are based on your credit report. It goes from 0 to 999, with higher scores meaning lower risk. Different lenders have different scoring systems and standards for what they accept.

To improve your credit history, you should try to:

  • Check your credit report often and fix any mistakes or issues that might lower your score.
  • Pay all your bills on time and in full. Set up direct debits or reminders to avoid missing any payments.
  • Keep your credit utilization low. This is how much of your available credit you are using. Try to use less than 30% of your credit limit on all your accounts.
  • Build a positive credit history by using credit wisely and regularly. For example, you can use a credit card for small purchases and pay it off in full every month.
  • Avoid applying for too many credit products in a short time. This can drop your score and make you look needy for credit.
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Age and Property Type 🏡

Age and Property Type 🏡 Your age and the property you want to buy matter for lenders. Your age affects how long you can pay your mortgage and how risky you are for the lender. The property you want to buy affects how much it is worth and how easy it is to sell.

Lenders have a minimum and maximum age limit for borrowers. They also have different criteria for different mortgages and buy-to-let properties. Some lenders might not lend on some properties at all, or have different LTV ratios for different properties.

To improve your age and property type, you should try to:

  • Choose a property that is in good shape and has a high demand and value
  • Choose a mortgage term that fits your age and income
  • Consider different types of mortgages that might suit your needs and circumstances

 

The image depicts several British £10 notes spread out as a cash deposit.

 

Deposit Amount 💵

  • Your deposit amount is the last thing that lenders look at. Your deposit is the money that you pay for your property. Your deposit affects how much you borrow and how risky you are for the lender.

    Lenders usually need a minimum deposit of 5% to 10% of the property value, depending on the mortgage and property. But the higher your deposit, the better your chances of getting approved and getting a lower interest rate. This is because a higher deposit lowers the LTV ratio, which is the percentage of the property value that you borrow.

    To improve your deposit amount, you should try to:

  • Save as much as you can for your deposit. You can use a savings account, an ISA, or a Lifetime ISA to save money and earn interest. You can also use a Help to Buy ISA or a Help to Buy Equity Loan to boost your deposit if you are a first-time buyer.
  • Reduce your debt and improve your credit score. This will help you get a lower interest rate and pay less each month, which will free up more money for your deposit.
  • Ask for help from your family or friends. You can use a gifted deposit, where someone gives you money for your deposit. You can also use a family offset mortgage, where someone puts their savings in a linked account that lowers your mortgage interest.

 

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Conclusion 🎉

Getting a mortgage is not easy, but it is not impossible either. Understanding and meeting the mortgage lending criteria for first-time buyers can improve your chances of getting approved and getting the best deal possible. You can also use some of the resources and tools that we have mentioned in this blog post to help you find the right mortgage for your needs.

Consider working with a specialist mortgage broker who will help unlock better mortgage deals tailored to your unique situation, this will save you time and money. Whether you’re exploring better mortgage deals or seeking a quick decision in principle, reach out to West Wales Money today!

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For further information:

☎️ Call 01239 727990 or

📩 Email info@westwalesmoney.co.uk

 

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