What matters most when you want to apply for a mortgage can be pretty confusing. When you start to research what factors play a role, you can sometimes even find conflicting information. Is your credit score really important? How much does your deposit make a difference to how much you can borrow? These kinds of questions aren’t always easy to find answers to. But there are some important factors that everyone should take into account when they’re looking for the right mortgage. Keep reading to find out what you should really be paying attention to when you’re trying to find the right deal.
What you can expect in this article:
The size of your deposit is one of the most important things when you want to buy a home. When you take out a mortgage, it’s based on a percentage of the property’s total value, with your deposit covering the rest. And the lower your loan-to-value rate is, the better the deals you find will be. Usually, the minimum is at least a 5% deposit. During periods when lenders are being stricter, 95% mortgages can be tough to come by, and you’ll need at least 10% for your deposit. But if you have more, you can find you have better luck finding the right deal.
How Much You Earn (and How)
It’s no secret. If you want to take out a mortgage, your income will influence your borrowing. In fact, it’s probably the factor that matters most. Lenders will usually use a multiplier of your annual income to work out how much they might lend you, although they’ll also consider other things. In the UK, 4.5x your income is the standard amount, but you could be offered less or maybe more. A good place to start is with a mortgage affordability calculator. It can give you a good idea of how much you might be able to borrow, whether it’s offered by a mortgage broker or a specific lender.
Your Credit Profile
In terms of your credit history, things can start to get a little confusing. Some will say getting your credit score as high as possible is essential. Others will say that credit scores are just a number, and it’s the specifics of your credit history that matter most. One thing is for certain, and that’s that lenders will carry out a hard credit check. They want to know about any current debt you have and your history with payments so they can assess your level of risk.
As well as your income, lenders will want to take a close look at your spending. It’s great if you have a higher income, but that might not mean much if you’re living beyond your means. They want to know about your regular payments, plus your discretionary spending. This will help them determine how much you can afford now and whether you’ll be able to cope with a rise in interest rates in the future.
There’s a lot to think about when applying for a mortgage. Focusing on the most important factors will help you prepare.
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