Qualification for a remortgage is the same as qualifying for a purchase. The lender will assess your ability to afford the mortgage now and during the term of the mortgage.
Are you a good candidate for a mortgage? And how much money do you get? Examine the factors that influence a lender’s ability to provide you with a mortgage.
Qualifying for a Remortgage: How to Know if You Will Get the Deal you Want
It’s a good idea to decide whether you’ll qualify for a remortgage before taking the next move. When it comes to a remortgage, there are a few specific items to consider that will help you determine whether you are going to get approval or not. A good mortgage broker like Mortgage Saving Experts will be able to know when speaking with you whether or not you will potentially qualify for a remortgage. Things to consider are:
Your credit rating
Any lender who offers you a remortgage will take your credit rating into account. Bad credit will make remortgaging more difficult, but that doesn’t mean you can’t do it. If you have poor credit, you should expect to be refused the best remortgage offers. Borrowers with excellent credit scores get the best interest rate deals. Getting a better remortgage offer can be as simple as reducing your debt and raising your credit score.
If you have enough equity in your home, you will be able to get better remortgage deals than those that have less equity. The value of your home minus the amount you owe on it is your equity. If a homeowner wishes to increase their equity in their house, they must either increase the property’s value or pay off and reduce the mortgage balance.
When you apply for a remortgage, a lender will set interest rates depending on what your Loan to Value is. It is another way to see how much equity you have in your house. The LTV is calculated by dividing the value of the remortgage sum you want to borrow by the value of your home. The better the remortgage interest rate you have available, the higher the value of your property and the lower the sum you want to borrow. The lower the Loan to Value to lower the interest rate.
Your household income level would be a factor in determining whether you can remortgage and what offers are available to you. The lender is most concerned with whether you will be able to repay the loan. A homeowner will typically borrow up to 5 times their gross annual income (before tax).
The amount of debt you have will reduce the amount of money you can borrow. Lenders want to ensure you will be able to afford your mortgage. Lenders recognise that if you have a large amount of debt, a large portion of your salary is going toward servicing that debt rather than being available to afford your remortgage. A homeowner’s chances of getting approved and getting a decent remortgage deal are improved by not having too much debt. The lenders do expect you to have finance for a car or a small amount on a credit card but not lots.
Understanding the above topics will give you a clearer understanding of what lenders will look for while reviewing your remortgage application.
What affects mortgage eligibility?
Each mortgage lender establishes its own lending criteria. This means that while some lenders will reject your application, others may not.
In general, a lender would consider the following factors:
- how much you want to borrow
- your deposit
- what kind of property you want to buy – it can be harder to find a lender willing to lend on high-rise flats, ex-local authority property, homes made from non-standard materials, properties above cafés and bars, listed properties and so on
- your employment status (the longer you’ve been in your job, the better)
- any debts you have
- your regular spending
- your credit rating
- whether the mortgage is affordable for you.
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What do lenders look for when checking your eligibility for a mortgage?
Before lending you money to buy a house, a lender wants to make sure you can pay it back. They want to see if you settle your debts on time, how much you can afford, and if you meet their other requirements, such as age and UK residency.
Lenders will consider the following factors:
Your earnings – they’ll usually ask for your most recent P60 and three to six months’ worth of payslips. Some lenders may also consider government assistance and child support payments.
You won’t provide payslips if you’re self-employed, and your income will fluctuate more than it would if you were employed. You will be asked to provide financial records, and the checks may be more stringent. The documents the lenders ask for are either accounts if you are a Limited Company or tax Computations and tax year Overviews for the last 2 years. These can be obtained from the Inland revenues online system, or you can call them to get them to post the documents to you.
Your spending habits – you might be questioned regarding loans, credit cards, utility bills, and insurance plans. Daily expenses, such as a child or spousal maintenance, school fees, childcare, and work travel costs, would be taken into account for affordability by lenders. They may even ask you to estimate other living expenses, such as how much you spend on clothes and entertainment. To prove this you might need to have a few months’ worth of bank statements.
Future scenarios – Lenders will put you through a stress test to see whether you’ll be able to pay if your circumstances change, such as if interest rates increase or if you lose your job or have a baby. A lender could, for example, “stress” their mortgage rate by 3% to see if it’s still affordable.
If you’re getting a joint mortgage, the lender can look at everyone’s finances.
What documents will I need to prove eligibility for a mortgage when I apply?
Mortgage lenders will need proof of identification and information about your financial status to comply with laws governing mortgage affordability and anti-money laundering regulations.
To establish your identity
You’ll need to demonstrate the following to your potential lender:
- your passport
- your Driving Licence
- bank statements, a council tax bill and water bills dated within three months – mobile phone bills are not acceptable
To demonstrate your earnings
You must provide the following information to the lender:
- payslips from the previous three to six months, the most recent P60, proof of any bonuses or commissions earned or due, and three to six months’ worth of bank statements (these should be for the account your salary is paid into).
To demonstrate your self-employment profits
As proof of income, you’ll need the following documents:
- two or three years of certified accounts (depending on the lender), proof of your earnings in the SA302 tax calculation, and a tax year summary for up to four years from HMRC. You can consult with your lender to see if they can allow documents that you printed yourself.
- You’ll have to submit evidence of current or future contracts if you’re a contractor.
- You’ll need to provide proof of dividend payments or retained earnings if you’re a business owner via SA302s or tax Computations and tax Year Overviews.
- Just remember, you can’t print your tax documents until 72 hours after you sent in your tax return. Allow time for this, if necessary.
To show that you spent money
You’ll need the following items:
- Bank and credit card statements for the previous six months.