It’s common for the costs of repaying a mortgage and maintain the ongoing costs of owning a property to be higher than the current cost to rent. So, if you’re moving from a renting situation to home ownership it is important that the bank can see you practically living with excess income after expenses. A regular savings history could be all the proof that a lender needs.
Before a lender approves a mortgage, they will inspect your bank statements. If they see dishonoured direct debits or unarranged overdrafts you could be declined. These things make you look risky and hints that you cannot manage your finances well.
There are two situations when your own bank might be the wrong people to ask for a mortgage from.
Shop around for the best solution, this is where a mortgage adviser comes in handy because they doo all of that work for you.
Mortgage advisers know the application criteria for different lenders and negotiate for better interest rates. If a bank says NO they may be able to find another bank or lender that will say YES. More often they can get a better deal for you than if you go direct.
Having a pre-approval in place has a number of benefits. It shows sellers and agents that you’re serious about buying and helps you present a cleaner offer to the vendor. It’s also one less thing to worry about once your offer is accepted too as there is a lot to do at that stage.
Lenders pay close attention to your credit score. In fact, a bad credit score is often an automatic no from a bank. Other non-bank lenders can be lenient but that comes with higher costs.
Repaying a mortgage requires a consistent flow of income. If you have a history of changing jobs it could signal to the bank that you have periods of time when your finances are limited. Moving between living arrangements could indicate that you are not settled. A mortgage is expected to last somewhere between 20 and 30 years so being settled and focused is an important consideration.
Many lenders require a deposit of at least 20% of the house price before giving out a home loan. It’s also note-worthy to mention that the bigger your deposit, the less you’ll pay in interest. If you do get a mortgage for more than 80% of a property’s value, you’ll likely have higher interest costs because the special interest rates offered by the lender won’t be available to you. Lenders also have a higher servicing benchmark for you to meet if your deposit is below 20%.
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