Buying a home? Forget your A’s and B’s…you really need C’s, D’s…and E’s

Property is on the rebound. At least it appears to be in the UK and the US. Other markets are still in the doldrums, but most markets will eventually come right.

When planning to purchase a first home, the essential underwriting guidelines within various mortgage lenders are very rigid, following are some ‘must-have’s’ for those hoping to jump from house-hunter to home-owner as hassle free as possible.

Mortgage applications are being strictly evaluated

Mortgage applications are being strictly evaluated

 

C is Credit. Credit…reports and loans. When looking for credit such as a mortgage, having a good credit report is key. Without one, a mortgage application is likely to be rejected immediately. This is why it is vitally important that would-be first time buyers check out what their credit report says about them…before they make a formal mortgage application. All credit reports carry invaluable personal information such as any previous loans taken out, the amount of the loan and monthly repayments. They also record if payments were missed and even if loans were defaulted on. In some rare occasions, recording and reporting errors can occur so it is always a good idea to check out (and correct where errors do occur) one’s personal credit report first, before submitting a mortgage application.

D is for Deposit…and Documentation. This is a biggie. Required deposit amounts can range from 10% to 20% of the purchase price of the property. Many lenders are looking to see evidence that a significant proportion (all of it in some cases) of a deposit was saved through personal financial discipline as this will give lenders the best reassurance that they are likely to get repaid in full. Documentation is also very important. For example, when paying rent, it is better to do so through a bank account than by cash as this leaves a verifiable paper trail which mortgage lenders are more comfortable with. Bank statements are also required as supporting evidence that banks can evaluate an applicants money management skills. They prefer original bank statements as opposed to home printed ones.

E is for Employment. It goes without saying that this is the major keystone in the decision whether mortgage lenders will approve a loan or not. They will carefully examine who is securely employed. They will also be looking to see how those in employment are paid and the level of guaranteed wages (as opposed to overtime, bonus etc). It is important to be in full-time employment if a mortgage application is to be considered…and approved. In some cases, banks will even consider the security of the employer or the industry one is employed in when evaluating the long term security of a job.

Mortgage lenders are charged with managing risk. Risk to themselves as well as risks to their consumers. Mortgages are complex, long term financial contracts and banks will seek as much relevant data as possible during the application stage when evaluating an applicants capacity to repay their loans for the next 30 years (or more in some cases). Therefore, it is essential that all would-be first time buyers are fully prepared to take on the mortgage challenge if they are to make that jump to homeownership successfully.

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