One of the main questions a first-time buyer might ask is “What do lenders look for in a borrower?”
At first, the system can seem daunting and almost to make decisions at random. Many people will tell you that they have friends with apparently “good” credit that mortgage lenders passed over. Conversely, many others will tell you that they have friends with apparently “bad” credit that mortgage lenders accepted!
So, what’s going on? Just what are mortgage lenders looking for in a borrower?
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Credit scoring isn’t everything
It’s true that one of the first things a lender will look at when you apply for a mortgage is your credit score. And it’s also true that credit scores are important. However, they are not the whole thing. Your credit score only gives a glimpse of your trustworthiness – in your ability to make good on promises.
Lending to someone who isn’t trustworthy is a big risk, and not one most lenders want to take. This doesn’t mean you shouldn’t be keeping your finger on the pulse, of course! It just means that you need a more holistic approach.
Your income matters more than you might think
It’s one thing to have a great credit score. It’s another to be able to afford repayments. Just because you have a good track record doesn’t mean the material wealth is there. Lenders don’t just want to know you’re trustworthy. They want to know you have the means to fulfill your promise to them.
If you’re self-employed, you must submit additional documents to prove you have a consistent income. Since you or your accountant work out your taxes, rather than PAYE, mortgage lenders won’t have much to go on with regards to tax documents. It’s up to you to show them your financial history.
Remember, if you default on your mortgage, the lender has to soak up the cost by reselling your home. If they lose money on resale, that harms their business. Therefore, if they don’t think you can pay, they’d rather not run the risk.
Are you on the electoral roll?
Getting on the electoral roll is easy – all you need to do is register to vote. Provided you have at least one fixed address and your National Insurance number handy, you can do this in as little as fifteen minutes.
There is some confusion with this. Many people assume that lenders use the open register, which various firms can purchase for the purpose of sending junk mail in the post. This is not the case! Lenders use the electoral roll, not the open register. This means that you can request that your name is not put on the open register and still be on the electoral roll.
Your financial relationships and dependencies
It’s not just about you when it comes to your finances. If you’re dependent on financial help from someone else, especially someone whose own credit rating is low, that looks bad to lenders.
What’s more is that, in the case of joint mortgages, both borrowers need to prove their worthiness. If you have a good credit score, but the other person doesn’t, lenders will consider you both to be untrustworthy and will not lend to you.
How can I increase my chances of a mortgage agreement?
It is usually suggested that first-time buyers work with a mortgage broker. Brokers will look over your financial history with you and give you guidance on what you need to do to be accepted for a mortgage.
Register with Credibble today and you can get some insight straight away. Credibble’s analysis will show you what changes you can be making right now to improve your chances of being accepted for a mortgage.