How do lenders assess my mortgage application?

2021-10-21

You’ll need to submit a mortgage application to secure a loan to buy your dream home.

This application will be made up of a pack of documents and lenders will go through it thoroughly. The Central Bank has strict guidelines which are enforced to make sure that responsible lending is taking place.

It’s important to get your paperwork in order before you come to apply for a mortgage. Lenders want to see evidence for everything you claim in your application.

At Which Mortgage, we’re getting a lot of this process online to save you time.

However, it’s fair to say you need to prepare a while in advance of submitting your mortgage application. So, commit to the process and allocate the time you need.

Lenders will be looking for evidence of the following:

Your regular income

This one is obvious.

Lenders need to ensure that they are lending you an amount of money that you can reasonably afford to pay back every month. This is a precaution they need to take to keep both you and themselves safe.

Some lenders will consider any bonuses or overtime you may earn. Speak to your mortgage broker to understand exactly what income will count towards your mortgage application being viewed favourably.

Your regular savings

As we never get tired of saying, your deposit is your superpower when it comes to your mortgage application.

A deposit shows proof of regular savings.

By having a deposit in hand, you’ll need to borrow less which will make your mortgage more affordable. And you’ll also reassure lenders that you’re a good credit risk because you’re able to be responsible with money.

Your age comes into play

Mortgages are long-term loans and your age is factored into the amount of years a lender will be prepared to lend to you for.

There are exceptions, but most lenders feel comfortable providing mortgages up to the age of 66 or 67.

Any debt on your name

It’s always a good idea to pay off all of your debt before you apply for a mortgage. However, if this is not possible, pay off as much debt as you can. Prioritise getting credit card debt off of your plate.

Having any outstanding loans on your name will reduce the amount a lender will be prepared to make available to you.

Your monthly expenses

Alongside your mortgage payment, you’re also going to have your monthly living expenses.

You need to provide a record of what these are, including your ongoing costs such as childcare.

Your credit record

Your credit record shows how you have handled the repayments of any loans you may have had in the past. This is a source of information for lenders on your credit risk status.

Also, lenders will go through your credit record with a fine tooth comb looking for evidence of red flags, such as gambling habits.

Your house value

If you are not a first-time buyer, lenders will also be looking at the market value of your current home.

The sum you are asking to borrow

This will be the sum of the sale price of the property you want to buy minus your deposit. First-time buyers are required to have a 10% deposit for a property purchase by Central Bank rules.

Details of your guarantor

Not everyone will have a guarantor on their mortgage loan.

But if you do, your lender will require their details.

Details of who all is taking the mortgage on

Are you applying for a mortgage on your own? Or do you have a partner you’re applying with for your mortgage?

Lenders will need details of each person who will appear on the mortgage documents. Each individual’s savings details and record of any owings they may have will need to be submitted too.

What circumstances will prevent my mortgage from being approved?

Firstly, let us reassure you that there is an appetite among lenders to approve mortgage applications.

That said, mortgage applications do get turned down from time to time. The most common reason for this is:

Not enough income

If you are not bringing in enough income to repay the amount of money you want to borrow in your mortgage, the lender will decline your application.

At the current moment, Central Bank rules allow you to borrow 3.5 times your gross annual income. Therefore, if you're earning €50,000 per annum gross the maximum mortgage you would qualify for would be €175,000. Exceptions are made, though these are at the lender’s discretion.

A poor credit history

Your credit history is an incredibly important piece of your mortgage application. Making certain you keep up to date with all of your repayments is how you ensure you have a strong credit history.

But don't despair if you've had some difficult financial times in the past.

The most important thing is to be upfront with your mortgage broker. And then to take a bit of time to get your credit history back on track. You can usually strengthen your credit history within six months.

Too many loans

If you have too many borrowings, lenders will most likely take the precaution of declining your mortgage application. A lender would see you as overexposed if you have too many loans on your name that you need to repay.

Your job status

Lenders use your mortgage application to understand just how stable you are to lend money to.

Now, the whole world of work is undergoing massive transformation and many economically active people are not in full-time permanent employment.

Truthfully, lenders do still consider full-time permanent employment to be the safest option. However, as a mortgage broker we have helped many self-employed people and Contractors secure mortgages.

The important thing is to be upfront and honest about your job status with your mortgage broker. This way they can brief you on how best to complete your application.

No history of savings

Lenders are always looking for a history of savings.

Even modest savings can count in your favour if you can prove that you regularly put aside money from your monthly paycheck.

In summary, the best advice that we can give to anyone is to prepare thoroughly when you're putting your mortgage application together. Look at this pack of documents as a representation of you and why you would be a good credit risk for a lender.

Contact us if you would like more information. We help hundreds of clients every month secure mortgages for the property of their dreams. And we would love to help you!