It’s now harder than ever for young people to get on the property ladder. House prices are rising astronomically. They’re far outstripping the increase in wages. That means the gap is getting wider and wider for first-time buyers. It’s a difficult time to invest in property, and that’s why home loans are more important than ever.
The only question is, do you qualify for a home loan or mortgage? To answer that question, there are lots of factors to consider. You income, credit history, and your location all determine your eligibility. We’ll start by running through the basic questions that all mortgage lenders will ask. It should give you a rough idea of whether you could qualify for a loan.
Do you have a deposit saved up?
To purchase any property on the market, you need a deposit. Mortgage lenders unfortunately won’t even consider your application without a deposit. Typically, you’ll need between 5% and 20% of the house value just to get started. Many brokers ask for 10% minimum. This minimised the lender’s risk slightly, and proves that you can afford a substantial portion of the property. So, before you approach a mortgage advisor, make sure you know how much deposit you can afford.
Do you have any debts?
Nothing scares off lenders like a big history of debt. They want to know that you can handle another monthly payment commitment. So, if you have outstanding installments against a car loan or credit cards, you’ll need to bear them in mind. You can still qualify for a home loan, but lenders might deduct these debt payments from your income first. They’ll then base your ability to pay on the figure after your current debts. We advise paying off your debt before approaching lenders.
What’s your annual income?
All home loans and mortgages are calculated upon your ability to pay the monthly rate. The biggest consideration is of course your income. Lenders need to know that you have enough money coming in each month to cover their repayments. As we mentioned above, they may deduct your current debts, and any other financial commitments first. At this point, it’s worth doing a home loan comparison. Some brokers and banks will allow you to qualify with a lower income than others. You’ll have to shop around to find the best option for your salary.
Is your credit history clean?
Even if you don’t have any debts now, your lender will look back into your history. What is your experience with large purchases, and do you have a good record of paying it back? They’ll look at old credit cards, previous rental and mortgage payments to see if you’re eligible. If there are any black marks, you may not qualify at all. You can begin to rebuild bad credit, but it may take a while.
Where do you live?
Lastly, home loans vary wildly from location to location. That’s because house prices vary. You may qualify for a home loan in one place, for example. But, make the same application in a city centre (where prices are higher), and you may be rejected.
If you can answer all these questions positively, there’s a good chance you’ll qualify for a home loan. Congratulations!