UK Lending Info Borrow Money Online Home About Contact Mortgages Credit Cards Author: Kyle Raised in a business environment and holding a degree in finances, Kim has the experience and education to provide realistic and up to date advice on various aspects of the industry – from loans and mortgages to credit cards and scores. She has been through the type of financial situations that everyone could struggle with every now and then, so she has a hands on approach for her guides and articles. Learn from her successful stories, use her tips and tricks and take advantage of the small mistakes she has made to redress your financial life and put it back on track. How Lenders Assess Your Affordability In A Mortgage Mortgages Most people try to figure whether or not they can handle their monthly payments when applying for a mortgage. Sure, your lender will take a look at the income and expenditures, but the truth is there are more things to take in consideration. Plus, how do you know how much money you might be given? Here is how lenders assess your situation to make a decision. How lenders see things when they assess your case Years ago, lenders would make decisions on nothing but your income. The loan to income ratio used to vary. For instance, if your annual income is £20,000, lenders could give you three or four times more – up to £80,000. Obviously, some lenders provide different values, but most of them are capped to certain limits. If you buy a house with your partner, that number could double up. Apart from the actual income, lenders will also keep an eye on the type of monthly payments you can make. They analyse your current income, as well as your expenses and lifestyle. Apart from the income to loan ratio, you will also have to consider the affordability assessment. The lender must ensure you can make repayments and your income is often irrelevant here. If you make £3,000 a month and your car, other loans and lifestyle needs cost you £2,500, your mortgage will obviously be limited. Therefore, lenders take more aspects into consideration, such as having a baby, taking a career break and so on. If a lender believes you may not be able to make payments later on, they will reduce the amount of money you can borrow. Income considerations Your income includes various factors and apart from your wages, it may also be a pension or an investment. Child maintenance support from your previous partner will also be considered, not to mention other potential earnings – bonuses, overtime, a freelance job or others. Proving your income will involve using payslips and bank statements. Things are a bit different for self-employed individuals, as they also need to provide business accounts and previous income tax details. Expense considerations Your expenses are just as important. Current credit card repayments will be considered, as well as all the bills you have to pay and perhaps your rent. Maintenance payments, lifestyle expenses, other loans and agreements are just as important, not to mention insurances – car, pet, travel and so on. You will also have to provide lifestyle figures, such as your expenses on recreation, childcare, social interaction, clothes and others. Future changes You may not think too far ahead, but your lender will. You will pay your mortgage in 20 to 30 years, so potential changes should be taken into consideration as well. Interest rates could increase – what would you do in that case? What happens if you lose your job out of nowhere? What happens if you get injured and you are unable to work? Other changes may be positive though – such as having a baby or perhaps taking a career break for half a year. It also helps if you do your homework upfront and consider such potential scenarios – it might be wise to save up and ensure you have enough money for up to half a year should an unexpected situation arise. In the end, the way you see things when considering a mortgage is different from the way a lender looks at it. Understanding how the lender assesses such situations will help you make the most out of your application and increase your chance of getting accepted. While a lender will try to make this option as safe as possible for you, it is just as important to plan everything upfront as well, rather than rely on someone else. Five Clever Ideas To Use Your Credit Card The Right Way Credit Cards A credit card could be the first step in building a solid foundation for your further financial life. It might be the beginning of a strong financial profile, but at the same time, irresponsibility could turn this venture into a financial disaster. Here are a few helpful tips to implement in your financial behaviour to ensure you use your credit card by the book. Pay more than what you are asked to The rule is fairly simple to understand – the faster you pay your debt off, the better. No one wants debt – it is stressful and it can cause various complications. No matter how much you spend with your credit card, you will be asked for minimum monthly repayments, which could be tiny or slightly high. If you are asked for £5 a month, try paying £10 or more. The faster you fix your balance, the less interest you will have to deal with later on. Apart from saving money on the interest rate, you can also get rid of that thing that is constantly on your mind. As a general rule of thumb, try to pay off as much as you can and you will thank yourself later. Slow down on those applications Applications for credit cards go in an unusual direction. The more you apply, the more chances you have, right? While this rule may apply to other things, it does not work for credit cards. If you apply and you get rejected, it might have an impact on your financial history and credit score. Apply for a second company and get rejected again. The more you do it, the more likely you are to face rejection. Previous rejected applications in a short period of time will raise some question marks for lenders. Fortunately, some companies bring in eligibility checkers – use such tools. It pays off knowing upfront whether you might be accepted or rejected based on your current financial situation, requirements and circumstances. Boost your credit rating with a credit card Having lots of credit might affect your credit rating the wrong way. But having no history whatsoever is just as harmful. A good credit score will give you better deals and easier access to more important stuff, such as a mortgage. Use your credit card – even if you actually have the funds for your purchases, then pay everything back before the interest kicks in. it shows responsibility and it boosts your rating. Pay your balance in full every month If you can do it, try to pay your balance in full before the end of the month. This is probably the best way to use your credit card. At this level of responsibility, you do not even have to think about interest rates. Instead, focus on cash back rewards and other special offers. Furthermore, some lenders provide even more offers for those who repay their debt within the interest free time – it is usually a month. Get a direct debit up Are you the type who forgets about bills or payments? Some lenders will not notify you on upcoming payments. Delaying by one day can bring in extra fees for late payments, even if it was an innocent mistake. To avoid such mistakes, simply set a direct debit and ensure the bank can take the money on the right day. In the end, credit cards could become your best financial friends for support and a great score, but they can also overwhelm you. Just like any other financial product, they require thorough planning and attention upfront – as well as a great degree of responsibility. Advice To Maximize Your Chance Of Getting Your Mortgage Application Accepted Mortgages Unless you are a rocket scientist paid in gold or you have inherited a fortune, chances are you will need to borrow money to buy your first house. Some people have high expectations regarding the money they can get, only to face serious disappointment later on when they get rejected. Here are a few helpful tips to ensure you will get accepted. Save up for a fat deposit The bigger your deposit, the less money you will have to borrow. At the same time, you will face lower interest rates, while the lending institution takes less risk with you – meaning you are more likely to get your application accepted. While you can get a mortgage with anywhere between 5% and 15%, the best deals on the market go for users who can come up with 30% to 40%. They show great responsibility and the risk is relatively low, hence the great deals. In other words, it might pay off by delaying the application for a bit and saving anything you can. Get rid of unsecured debts A mortgage lender will analyse your financial situation in small details and will take a look at your income and expenditures. No matter what other loans you have, you will have to pay for them in one way or another. It pays off doing it before applying for the mortgage. The less debt you have, the better. Especially if the debt is in the form of bad credit payday loans or similar. Clear as much debt as you can, but also get rid of the account you no longer use. Too many accounts may raise some question marks and lenders could be a bit worried about your capacity to pay – get rid of them and maintain a clean profile. Stay away from unusual places Unusual properties come in all kinds of shapes and sizes. You may want to stand out in the crowd, but your lender will see the situation in a completely different way. For example, no matter how unique your potential place is, your lender will try to determine whether or not they can sell it should you default on your payments. As a direct consequence, lenders are anxious about unusual properties and may find it more difficult to accept you. This category is quite diversified and there are no written rules. For example, flats above cafés and bars might be difficult to sell. The same goes for buildings erected with unconventional materials – such as steel or concrete. Update the electoral roll Every lender will take you through a proper check in order to verify who you are. Your mortgage application could be refused if you are not responsible enough to register on the electoral roll. Even if you are already there, make sure it is updated with your current address. Such details must perfectly match. The good news is you can make this change overnight. Get in touch with the local authority and try to make updates online. Also, you might want to update your address on credit agencies – chances are the lender will get in touch with them. Use a broker Find a broker who will not charge you anything. Some brokers are paid by lenders once they establish the connection between you and them. While the service is free, it does not mean you can settle for any broker out there. You want someone who will not try to sell you expensive services for a higher commission, so do a bit of research upfront. They know what you need upfront and will ensure your application is smooth. Bottom line, these five tips will give you a plus when it comes to getting a mortgage and will increase your chances to get your dream home faster. 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