Every lender has its own policies, but most look at the same broad areas when they assess a home loan application. Knowing what they are can help you prepare, and can save you from applying before you are ready.
Income and employment
Lenders want to see that your income is stable enough to meet the repayments. They will usually ask for recent payslips, or tax returns and financial statements if you are self-employed. Overtime, bonuses and commission are often counted only in part, and a recent change of job or a probation period can affect how a lender views your application.
Living expenses
You will be asked about your regular spending, and lenders compare your figures with their own benchmarks. It helps to go through a few months of bank statements beforehand so the picture you give is accurate. Understating expenses does not help: lenders check, and a realistic figure protects you from borrowing more than is comfortable.
Existing debts
Credit cards, personal loans, car loans and buy now pay later accounts all count. For credit cards, lenders typically consider the limit rather than the balance, so a card you rarely use can still reduce what you can borrow. Closing or reducing limits you do not need is one of the simpler ways to improve your position.
Your deposit and savings
A larger deposit reduces the lender's risk and can remove the need for lenders mortgage insurance. Lenders also like to see a pattern of regular saving over time, and will ask where the deposit has come from if part of it is a gift.
Credit history
Your credit report shows how you have managed credit in the past, including missed payments and previous applications. You are entitled to a free copy from the credit reporting bodies, and it is worth checking before you apply so any errors can be corrected.
The property
The lender will usually value the property to confirm it is suitable security for the loan. Some property types, such as very small apartments or properties in certain locations, are treated more cautiously by some lenders.
Getting ready
None of this needs to be perfect before you ask for help. If you are unsure how your situation will be viewed, a broker can explain how different lenders are likely to assess it, and what would be worth tidying up first. You can also read more about what affects your borrowing capacity.
This article contains general information only and does not take your objectives, financial situation or needs into account. Consider seeking advice specific to your circumstances before acting on it.
