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Kelsey’s guide to mortgages and home loans, for beginners


Mortgage application requirements

There are a number of requirements that have to be fulfilled when applying for a mortgage. Since the financial crisis and the subsequent losses incurred by lenders they are now more stringently applied meaning that failure to supply a complete package will lead to delays or, at worst, a rejection based on lack of credible supporting information.

The first basic requirement is that the lenders application form should be fully and accurately completed. This may sound like a trite comment but lack of information on this covering application form is one of the biggest reasons prospective borrowers experience delays in getting an application considered. This summary form also includes the lenders direct debit mandate form - and this is the only method a mortgage can be repaid.

You must be able to prove your identity. Acceptable methods are a passport or driving licence. This avoids the issue of identity theft and fraud so originals will most likely have to be produced at an office of the lender or a certified copy submitted with the application.

In addition to being able to prove who you are you will also need to prove where you live. This allows various credit checks to be performed and helps protect against money laundering. Ideally three years minimum proof of residence is required and this can be supplied by submitting copies of utility bills, council tax statements and registration on the electoral register.

Whether you are employed or self employed you will need to submit proof of earnings. For the employed person this is easier since at least three payslips should suffice. For the self employed the position is more complex. The self certification of earnings approach that was common before the recession is now largely redundant and lenders look for tangible evidence to support your income claims and that usually translates into at least twelve months trading statements certified by an accountant. You will probably also need to supply a copy of letters from the Customs and Revenue confirming that you are classed as self employed. Even then, an income of less than £50,000 per year is unlikely to be favourably considered for a mortgage.

Whilst the prospective lender will perform a series of credit checks they will also require a copy of the last twelve months current mortgage statement from your current lender. A satisfactory payment history is required or you will need to submit a detailed and reasoned argument to explain any payment discrepancies.

At the end of the day the prospective lender is looking for evidence that you have the ability to repay the loan that is being applied for. To do this they will look at income and expenditure claims and compare these to expected norms. This will be cross referenced with your credit history to see if you have had any payment issues in the past.

That means having sufficient income above reasonable day to day living costs to make the payments with some comfort. The best way to check this is to use an online mortgage cost calculator to see what the payments would be for varying periods on the loan you are applying for. Stretching the repayment period reduces the monthly payment but increases the total amount paid as the total interest charged will be higher. Also, you can check what the payments would rise to in the event of an increase in lending rates. Even those applying for a fixed rate mortgage should check this as at the end of the fixed term the mortgage will revert to a variable rate at the then current interest rates.



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