How Do Lenders Evaluate You when You Apply for a Mortgage? Your Top Questions Answered

When you have finally made the decision to purchase property, you know very well that your decision could – and will – have an impact on your life for years to come. It’s a major decision, after all, and one which should not be taken lightly. But before you even begin to apply for a mortgage, you should think about what you can afford – and also what lenders will consider when you submit your application. Lenders have definitive criteria when it comes to mortgage applicants, and you need to fit these criteria, so your application is approved. Knowing what lenders are looking for will help you prepare for your mortgage application. But how do lenders really evaluate you when you apply for a mortgage? Let’s find out.

The basic evaluation and assessment

In the not-so-distant past, lenders based their assessment on how much money to lend for a mortgage based mostly on the applicant’s income. This is what is referred to as the ratio of loan to income. For instance, if you have an annual salary or income of around £50,000, you could probably borrow about 3 to 5 times your annual salary, which would be about £250,000.

But today, things have changed. Lenders now assess the level of repayments you can afford whilst taking into consideration your living and personal expenses as well. This is what is referred to as an assessment of affordability. What’s more, lenders will now look at possible future changes which may affect your chance of repaying your mortgage, such as a career change, having children, and so on. If lenders decide, based on all these factors, that you may have difficulty repaying your mortgage in the future, they can set a limit on what they are willing to lend.

More on evaluation criteria

Let’s take a closer look at what lenders will check when it comes to your mortgage application:

  • Your earnings or income

Lenders will look not only at your own income but also your income which comes from investments or pensions. They will also consider income which comes from child support and maintenance as well as other earnings such as commission, overtime, bonuses, a second job, freelancing, and so on.

You will, of course, have to submit bank statements and pay slips as evidence, as confirmed by the experts in mortgages from Mortgage Wise, and if you are self-employed, you will have to submit bank statements, business accounts, and income tax details as well.

  • Your expenses

Lenders will also assess your expenses or outgoings, and this includes repayments for credit cards, payments for maintenance, payments for insurance, payments for credit agreements or loans, and monthly bills for gas, water, electricity, telephone, and others.

Lenders may also request estimates of your other expenses, such as clothes, child care, and recreation and entertainment.

  • Changes in the future

Another aspect which lenders may take a closer look at is potential changes in the future. These include an increase in interest rates, job loss, illness, and other changes such as having children or taking a break in your career. That being said, you should have enough foresight to think about the future and make plans for how you will be able to settle your mortgage payments if these changes come.

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