How to Secure a Mortgage
November 16, 2011
I wrote last week about my first job as an underwriter, where I used pen, paper and an understanding of the client to underwrite mortgages. While today we use computers and complicated algorithms to secure a mortgage, this understanding of traditional processes has helped me comprehend why certain documents and information are requested by lenders.
With this in mind I will look this week at a few things you can do to manage the outcome as much as possible. Here are a few underwriter pointers about what lenders are looking for that I hope will help you get one step closer to securing a mortgage.
Why? You need to be registered at the address you claim to be living at, and the electoral roll proves this. It is a way of verifying that you have confirmed that you live there and accept your voting rights there.
How? Call your local council to find out or check your full Equifax report.
Why? Looking at your credit rating you can identify any potential issues before you start an application with a lender. You will be able to pick up if you have any late payments, defaults etc by looking at the score you receive and the breakdown of the individual accounts.
How? You can check this using Experian or Equifax. For a small fee you can get your full report and score.
3 Months of Bank Statements
Why? These are requested so that an assessment can be made on the conduct of your account. They will also identify any debits or credits that have not been declared on the application. They also want to see corresponding salary credits against payslips provided.
How? Request online or from your bank in person.
Proof of Income
Why? Lenders want access to these to confirm income over a prolonged period of time.
How? If employed, you will need to provide a P60 and 3 months of payslips. If you are self-employed you will need 3 years of SA302S.
Proof of Deposit
Why? This is to check where funds are coming from for the mortgage deposit. Firstly for money laundering regulations and also to ensure the deposits are not being gifted by parents (a lender would need to cover themselves from a parent making a claim on the property) or if borrowed from other sources – effectively avoiding 100% loan to value.
How? By showing a bank statement, savings account summary, or latest investment statement showing current fund value.
Word of Caution: Interest Only Payments
Why? Due to the poor performance of endowment vehicles, lenders want to see a defin ite plan for reducing debt – it is something they are currently very cautious about.
How? If interest only is chosen a suitable investment vehicle (endowment, ISA, pension) will need to be evidenced to show it is capable of eventually repaying the debt (especially for the 75% loan to value and higher).
For further information, here are 10 ways to help you achieve a clean and well maintained credit reference.