How to Get Mortgage Lenders to Approve Your Application01:29 - Saturday 14 June 2014 - In Category Lifestyle
In my last article I discussed the importance of getting your finances in order. This may take a few months (or even longer), however once this is done you are ready for the next step – preparing for the dreaded mortgage application, writes Ziggy Moore.
Applying for a mortgage can be daunting, but there is no need to worry as you have all the advice you need right here. The first thing you need to do is to get an independent mortgage advisor as opposed to going straight to your bank. A good independent advisor will have access to a much greater range of products (sometimes hundreds of different mortgage products), whereas high street lenders are restricted to only selling the products their bank/building society has to offer.
The two main things mortgage lenders need to be able to see when approving you for a mortgage are:
This simply means: Can this person afford to re-pay the mortgage? To make this judgement, lenders will need to see at least three of your monthly bank statements showing your income and outgoings. Therefore, you can’t afford to be dipping in to your overdraft every month just before pay day! It wouldn’t look good.
Mortgage companies will also use your current annual salary as a rough guide as to how much they can lend you. As a single person this is usually four times your annual salary, or as a couple it is calculated as 1.5 times your combined annual salaries.
Additionally, try not to make your repayment calculations based on current interest rates of around 3%. Use a worst-case scenario, for example if the interest rate for your mortgage were to rise to 7%, could still afford your re-payments?
Unfortunately, long gone are the days of 100% mortgages; when all you needed was a nod from your bank manager and you were given the green light. These days you will need a deposit (although, there are ways around this which we will get to in later posts).
The government is currently helping people on to the housing ladder with a small deposit of 5% via its Help to Buy Scheme. That said, deposits of anywhere between 10 and 25% can get you on to the housing ladder. But remember, the higher the deposit the lower your monthly re-payments.
It may seem like you’re putting the cart before the horse in getting a mortgage before you find a property, but doing this actually puts you in a much stronger position when you come to buy. Once a mortgage is approved you have what is known as a ‘decision in principle’ for up to six months, which means you have the funds approved, and you simply need to find a property. When you do find a property you want to buy it means you can move quickly, as you already have your finances in place.
In my next post we will be looking at where in London you can get the best bang for your buck. These are the hotspots that are not quite hot yet, so you can still get a bargain.