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What mortgage lenders look for

Getting a mortgage can be tricky business, especially given the fact that lenders have been tightening their lending habits since the start of the 2008 financial crisis. Arm yourself with some insider knowledge and start planning for your dream home today! Here are the key factors that mortgage lenders look for.

Your monthly income: in practice, you need to be earning £20,000+. Focus will be on your basic income rather than commissions, bonuses and overtime – but these do count. Non-guaranteed income will usually be considered as 50% of their estimated value (so for example, if you earn a yearly commission of £2,000, the lender will consider this to be £1,000).

Your occupation: some professions and trades (e.g. construction) are considered unstable. Lenders favour employment that is full time and permanent.

Your job stability: it’s an advantage if you’ve been at your current company for at least two years. Mortgage lenders also look for continuity in your employment history (no major career changes in the past two years, for example).

Debt-to-income ratio: combined housing expenses and other debts should be no more than 35% of your income.

Credit history: you should have no payment arrears or outstanding direct debits. Unnecessarily large credit card balances will count against you. It’s a good idea to check your credit report before you apply for a mortgage - that way you can be sure that there are no errors.

Loan-to-value ratio: the proportion of your loan amount to the value of your property. Lenders look for low ratios i.e. the deposit should be as large as possible.

Savings: considerable emphasis is placed on savings. Mortgage lenders look for a large deposit and evidence of good saving habits. Evidence of monthly transfers into a savings account will be to your advantage.

Life style: have you paid rent regularly? Do your monthly statements reflect frugal spending? Is your deposit a parental gift or have you saved for it yourself?

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