Mortgages, when you think about it, are not really that complicated. They involve borrowing money in order to purchase that property that you want, and the mortgage deal you opt for will determine how much you have to pay back (with interest). The period of time for repayments can extend from 10 years to up to 30 years, depending on your arrangement.
But when you are still thinking of applying for a mortgage, know this: the lenders will assess you so they can determine how much you can realistically borrow – and pay back. Lenders are, after all, running a business, and it’s only natural for them to want to make sure that you can afford your mortgage. So what exactly do mortgage lenders assess when you apply for a mortgage? Here, your top questions are answered.
Your monthly income
One of the first things mortgage lenders will assess is your monthly income, including any extra income you earn outside your regular job. So aside from basic income, lenders will also look into income you earn from investments or income from pensions. A lender will also check if you earn income from child support from an ex-spouse, and other earnings such as overtime work, commissions, freelance work, or bonuses.
You will have to provide the lender with proof of your income such as bank statements and pay slips. If you are self-employed, you have to provide the lender with business account information, bank statements, and income tax details.
Needless to say, lenders will also check your outgoings per month. This would include such expenses as credit card payments, maintenance expenses, expenses for insurance (life, pet, contents, building, travel, etc.), and other loans you may have. Other expenses will also be assessed, such as your water bill, gas and electricity bills, telephone and broadband bills, and so on.
Often, lenders will also ask for living cost estimates, such as how much you spend on clothing, entertainment and recreation, and the cost of taking care of a child or children.
Your future situation
Aside from income and expenses, lenders will assess your potential future situation. Lenders will try to determine if you can still afford to pay your mortgage in different circumstances, such as the loss of a job, an increase in interest rates, an illness, a life change such as the birth of a child, or a break in your career.
All in all, lenders will be pretty thorough – and so should you. You should also make sure to determine carefully how much you can realistically afford. If you are not sure of what mortgage deal to take, you should speak to an expert mortgage advisor, such as a mortgage and financial advisor Bristol from Open Vision Finance. With help from the experts, you should be able to find the perfect deal for your needs.