When it comes to purchasing a house, getting your mortgage application approved is often the most significant hurdle for many buyers. Lenders carefully assess a range of factors to determine your eligibility for a mortgage loan. At Lightbulb Lending, we understand how complex and overwhelming the mortgage process can be. We are experts in helping clients with impaired credit secure a mortgage and navigate the path to homeownership, ensuring you’re in the best possible position to secure the funding you need.
In this blog post, we’ll explore what lenders look for when assessing your mortgage application and provide tips on how you can maximise your chances of approval. Whether you’re a first-time buyer or moving to a new property, understanding these key criteria and preparing accordingly is essential to ensure a smooth and successful mortgage journey. Contact us today for more information!
Morgage Application: What do lenders look for?
When applying for a mortgage, lenders carefully evaluate several factors to determine if you’re financially capable of repaying the loan. While these may vary slightly between lenders, certain elements are almost always considered. Here’s a closer look at the key criteria:
Your Affordability
Your affordability is one of the primary factors lenders evaluate. Lenders assess whether you can comfortably afford to make monthly repayments based on your income and existing financial commitments. But this goes beyond just your salary. There are various unexpected elements that lenders may take into account, and some clients are surprised by what gets factored in.
For instance, ongoing financial commitments such as child maintenance payments or student loan repayments can impact your affordability, even if the children no longer live with you. Similarly, regular direct debits like payments for horse yard rent or storage containers are things lenders might consider as part of your financial outgoings. The key here is that lenders want to see a clear, stable income and expenditure pattern to ensure you can handle the mortgage repayments.
If you’ve got payslips showing deductions (such as council tax debt repayments, early salary drawdowns, or CSA maintenance), these can also affect the lender’s decision. The general rule is if these obligations are expected to continue within two to three months of your application, they will likely factor them into your affordability assessment.
Your Deposit Source
A key element of any mortgage application is the deposit you can put down. The source of your deposit is something that lenders take very seriously, particularly in relation to anti-money laundering (AML) checks. Lenders, as well as solicitors, will investigate where your deposit has come from to ensure it is legally obtained.
Lenders typically ask for a “paper trail” of your savings, which includes bank statements and proof of where the funds have been transferred from. If family members have contributed to your deposit, they’ll require documentation to prove the funds are legitimate. For example, if the deposit is a gift from family, lenders usually prefer it to come from immediate family members. If the money comes from friends or distant relatives, this could raise a red flag and complicate the verification process.
If the deposit comes from an inheritance or a lump sum from selling property, this won’t be considered as savings. Lenders will request additional documentation, such as a will, solicitor completion letters, or proof of the sale, to confirm the legitimacy of these funds.
Your Bank Statements
Lenders will request recent bank statements as part of the mortgage application process. They are looking for clear evidence of your income and spending habits. Excessive spending, especially on gambling or lotteries, can cause concern. Lenders often see transactions to gambling sites like Sky Bet or 365 as red flags, and these could result in your application being declined.
Moreover, multiple returned direct debits due to insufficient funds can create issues with your application, signalling financial instability. Lenders also dig deep into transfer references. They will question large or unusual transfers and may ask for clarification about who sent the money and why.
It’s important to avoid any activities that could potentially create doubts about the legitimacy of your finances. Even seemingly innocent transfers (like a £20 payment from a friend) could cause unnecessary problems if the reference appears suspicious.
Your Payslips & Attachment of Earnings
Your payslips are another vital aspect of your mortgage application. Lenders will pay attention to any deductions from your salary, such as tax repayments, student loan deductions, or maintenance payments. If these obligations are ongoing and won’t be finished within two to three months of your application, they will be considered in your affordability calculation.
In some cases, lenders will even look at the length of time you’ve been employed in your current job. Stability in your employment history can be a positive sign to lenders that you’re a reliable borrower.
Credit History
Your credit history and credit score are central to any mortgage application. Lenders will access your credit report to see how well you’ve managed previous debts, including credit cards, loans, and other financial obligations. They’ll be looking for a history of consistent payments and a low level of outstanding debt.
If your credit score isn’t where you want it to be, don’t panic. Lenders will look at more than just your score. Some will assess your overall financial situation, including the amount you’re borrowing and your ability to repay. Working to improve your credit score before applying can make a significant difference in your mortgage application’s outcome.
How to Put Yourself in the Best Possible Position for a Successful Morgage Application
Securing a mortgage is a major milestone in the homebuying process, and preparing for it can seem daunting. To maximise your chances of approval, there are several steps you can take to put yourself in the best position possible. By getting your finances in order and understanding what lenders are looking for, you can make the application process smoother and increase your chances of success.
Check Your Credit Score Early
Before applying for a mortgage, check your credit report to see if there are any areas you can improve. If you spot any errors or discrepancies, make sure they’re corrected. Additionally, try to pay off any outstanding debts, including credit card balances or loans, before submitting your application. By reviewing your credit early, you can take the necessary steps to improve your score or address any issues that might hold you back from securing a mortgage.
Save for a Larger Deposit
The larger your deposit, the better your chances of securing a mortgage. A larger deposit reduces the lender’s risk, which can help you secure a more favourable interest rate. Saving for a deposit might take time, but it’s worth the effort in the long run. A more substantial deposit can also give you access to a wider range of mortgage products and demonstrate to lenders that you’re financially responsible and committed to homeownership.
Avoid Making Large Purchases Before Applying
Lenders want to see that you can manage your finances responsibly. Avoid making any major purchases or opening new credit accounts in the months leading up to your mortgage application. These can increase your debt-to-income ratio and raise concerns for lenders. Large purchases, such as buying a new car or taking out a personal loan, can negatively impact your ability to secure a mortgage, as they may suggest financial instability.
Ensure All Documentation is in Order
Prepare all necessary documentation, including bank statements, payslips, proof of deposit, and any additional paperwork. Having everything in place before you apply can streamline the process and reduce the chance of delays or complications. Lenders will want to see clear evidence of your income, savings, and financial commitments, so having all documents organised and ready for submission will help you avoid any last-minute hurdles.
Maintain Stable Employment & Income
Lenders prefer applicants with stable employment and consistent income. If possible, try to avoid changing jobs or taking a pay cut right before applying for a mortgage. Lenders may be more hesitant to approve your application if they perceive any instability in your income. A solid employment history and predictable earnings demonstrate reliability and reduce the lender’s perceived risk.
Work With Lightbulb Lending for Expert Support
Whether you are managing your finances through a Debt Management Plan, have an IVA, have no credit or even if you’ve filed for bankruptcy and wish to apply for a mortgage, you might feel that your options are limited. Lightbulb Lending are experts in helping clients with impaired credit secure a mortgage, no matter their financial history. Securing a mortgage when you have bad credit is perfectly achievable with help and guidance from Lightbulb Lending. We work with specialist lenders who understand that life events can impact your credit score, and we’ll help you find the right mortgage product for your unique situation. We offer personalised support, ensuring that you have the best chance of success no matter your financial background. Contact us for more information!
Getting a mortgage is a huge step towards homeownership, and by taking the right steps to prepare yourself, you can significantly improve your chances of approval. From understanding what lenders look for to ensuring your documentation is in order, preparation is key. And if you’re dealing with impaired credit or complex financial situations, Lightbulb Lending is here to help.
Maximise Your Mortgage Success
Understanding what lenders look for when buying a house and how to put yourself in the best position for approval is crucial for securing a successful mortgage. By paying attention to factors like affordability, deposit source, and credit history, and taking the necessary steps to prepare your finances, you can maximise your chances of getting approved.
Remember, each lender has their own criteria, but with the right preparation, you can ensure your application stands out. At Lightbulb Lending, we are here to help you navigate the mortgage application process with ease. We’ll guide you every step of the way, ensuring your mortgage journey is as smooth and successful as possible. Get in touch with us today to see how we can help!
FAQs
What is the minimum deposit required for a mortgage?
The minimum deposit typically ranges from 5% to 20% of the property value, depending on the lender and your circumstances.
Can I get a mortgage with bad credit?
Yes, some lenders specialise in offering mortgages to those with less-than-perfect credit. However, you may face higher interest rates or stricter terms.
Do lenders consider my monthly spending habits?
Yes, lenders look at your monthly outgoings, including any subscriptions, loan repayments, and other commitments, to assess your affordability.
Can I use a gift from a family member as my deposit?
Yes, but lenders will require documentation to prove that the gift is from an immediate family member and not a loan.
How long does it take for a mortgage application to be approved?
The approval process can take anywhere from a few days to a few weeks, depending on the complexity of your application.
What is a good credit score for a mortgage?
Your credit score doesn’t really matter to lenders as they will use their own internal algorithms. What’s more, all scores differ across all the agencies.
Will I need to provide proof of income?
Yes, lenders require proof of income, usually in the form of payslips, bank statements, or tax returns.
Can I apply for a mortgage if I’m self-employed?
Yes, but you’ll need to provide additional documentation, such as tax returns and business accounts, to demonstrate your income.
What happens if my mortgage application is declined?
If your application is declined, you can try again with a different lender or work with a broker to improve your chances.
At Lightbulb Lending, we’re here to help you navigate the mortgage application process with ease. Get in touch with our team of experts and let’s get started on your homeownership journey today!
