Just the thought of buying a home can cause anxiety in some people. For many people, it is the fear of the unknown that causes stress. The following article covers a common list of questions that you can expect to see and may have to answer as you move through the loan process.
For many people, applying for a mortgage is stressful. A common concern is not knowing what types of questions the lenders may ask of you during the loan application process. While our intelligent online mortgage application process can make this process even easier for you, it is worth knowing the types of questions you may get asked by a mortgage lender.
The following article covers a common list of questions that you can expect to see and may have to answer as you move through the loan process.
Keep in mind that not all lenders will ask you all these questions and that some may ask variations on the same theme.
You will certainly see questions about this. You can expect to see:
Lenders need these details to work out whether you can afford a mortgage on the property. They need to know that you have an income that enables you to repay anything you borrow.
If you are in a secure job, with a regular income, you are less of a risk.
These questions are likely to be asked regardless of whether you are buying a new property or refinancing (remortgaging) your existing home.
These questions or variations of them will also definitely be on any application form.
It is best to have all this information at hand before you apply to save you time having to go back and check later.
These questions relate to your current debt levels. Again, the lender needs this information to assess whether you meet affordability criteria. The less debt you have, the better any offer will be.
Mortgage lenders ask about Credit Card and Car loans for two reasons. Firstly, like monthly bills to check that you can afford a loan but also to see whether you keep up with repayments.
For example, if you have a car, do you religiously pay the loan back each month or have you missed some payments? You are more likely to have a better credit rating if you keep on top of loan payments – any gaps in payment history will likely make the lender view lending to you a greater risk. Gaps in credit history relating to repayment plans can mean either result in higher interest values (which means higher repayments) or negatively affect the likelihood of you receiving a mortgage offer.
The greater the risk, the less likely you will be offered a mortgage.
Beyond your salary, Lenders look at how much other potential income you may have. They assess whether other assets such as stocks or bonds can be released if you suddenly find yourself in financial difficulty. You should include all the saving schemes you have regardless of type as they can help improve the likelihood of an offer.
When applying for a mortgage, you will need to pay a deposit.
A mortgage deposit is a sum of money that goes towards the cost of the property that you are purchasing.
The more deposit available, the lower the interest rate could be.
The term used in the mortgage industry for this is “Loan to Value”, often referred to as LTV.
It may sound complicated, but the LTV relates to the amount that the Lender secures against a mortgage. For example, for a property worth £100,000 if you have a deposit of £10,000, the deposit would be 10% of the price of the property. As a result, the LTV is the remaining 90%.
The lender secures the mortgage against this 90% portion of the property. The 10% is the amount of the property you own outright; the mortgage is the money you owe on the property.
The lower the LTV, the lower your interest rate will likely be. The mortgage lender takes less risk with a small loan; 90% LTV is at the high end of the scale, with fewer mortgages available to those with lower incomes.
The cheapest rate will typically be for those with a 40% or greater deposit.
When you apply for a mortgage, you agree to borrow money initially until you repay it in full. Usually over a set period of years. If it is a new property, you are purchasing (buying) a property.
Originally mortgages tended to last the full life of the loan. However, in the past two decades remortgaging (or refinancing) has become a popular option, where borrowers move their loan to another lender for a better rate – after a set period.
Mortgages come in different formats, but a common one is a fixed rate mortgage where you pay a set interest rate over a fixed period. Under a fixed rate mortgage you must remain with the lender for a certain amount of time or incur a penalty.
Typically, this is between 2 to 5 years and is agreed when you initially take the mortgage out. You can change lender before this time, but there will be a penalty (known as the early repayment charge) that means you probably won’t benefit from moving.
Once the penalty period has expired, if for example you have a fixed rate mortgage for two years and you are now outside of that period you can move to a different lender and move the loan to them for another fixed period under better terms.
The benefit of doing this is that mortgage lenders offer new customers various discounts meaning the borrower may be able to pay less interest on the amount owed during the fixed period. The process is known as remortgaging. A remortgage describes the process of paying off one mortgage with the proceeds from a new mortgage using the same property as security.
Where you have equity spare in the property (i.e. you have paid a large part of it off before remortgaging), you may at this point also be able to refinance. Refinancing allows you to request that the loan is increased to cover other costs such as making changes to the property providing the LTV is still reasonable.
Some lenders may also allow you to use this money for other things like paying off unsecured loans or credit cards. Lenders may allow refinancing for improvements on the property and paying off loans because, in theory, any renovations to the house may increase its value while any debt you pay off decreases the risk they won’t get paid – providing you can afford the increase, and it is within a reasonable LTV.
These are the reasons Lenders ask about all finances – incoming and outgoing when processing your application.
If a property is your primary residence, the lender will be expecting you to reside there, and you may need to prove your residence. The lender wants to be sure that you are not using it for commercial purposes and that you are not renting it out to someone else. A mortgage loan for use as primary residence tends to have a lower interest rate, but you must physically live there.
If the property it is an investment property, they will want to know how you are looking to finance repayments on the additional property.
Some investors take out “buy to let” mortgages with the intention of acquiring an asset that they may sell at a later date – the payments for which are covered by a third party that is renting the property. House prices tend to go up over time and as such owning multiple properties can be lucrative. However, they also come with a level of risk as “buy to let” mortgages still need to be repaid regardless of whether the property has a tenant or not.
Is the property a;
If it is a flat is it above commercial premises?
When entering into an agreement with a mortgage lender they are lending you the finance to cover the purchase of the property so that you can live there.
If you default on payments and fail to repay the loan their loan is secured against the property so that they can recover the debt.
They, therefore, need to know what kind of property they are securing their money against and other details relating to the property. It is another level of checks that Lenders use to access the risk they are taking to give you a mortgage loan.
For example, if the property is a flat above a shop or restaurant, there may be different risks associated with the purchase rather than if it were a detached property.
Assessing any loan application requires getting the full picture on the borrower, the property and the likelihood any mortgage loan will be repaid.
These questions are entirely normal, and you should not be too concerned if asked to explain in further detail.
The above are just a few of the most commonly asked questions. How you answer these questions will go a long way in helping you secure a mortgage – providing you can afford it, and they believe the risk to them is low.
You should answer all questions honestly on the application. The Lender will fully verify all details before they make an offer. They are not required to make an offer, and they can decline for any number of reasons.
To ensure you have the best available options, without spending a lot of time searching the market, whilst avoiding any of the common pitfalls, why not try Hoocht – the digital mortgage advisor. Hoocht offers a free online service that asks a few questions regarding your current circumstances and then searches for suitable products that fit your needs. Once products are found you can talk directly online to an advisor, who will then handle the application on your behalf.
The benefits of using an online digital mortgage application like Hoocht are;
During the process you can talk to our mortgage advisors online or by phone – whichever is your preference and best of all the whole service is free to the person applying for a mortgage.
To try the process, please follow this link for a New Mortgage or here for a Remortgage.
Although most questions can be answered relatively quickly, some circumstances require a bit more thought. The following list relates to circumstances where you may want to gather further information before submitting your application.
Knowing the questions beforehand can help you be better prepared for them when you fill out your applications and do your research. Be honest and be patient and that home you want may be closer than you think.