Applying for a mortgage can be a scary venture. Although banks require a standard mortgage application form from all potential clients, there are many factors that go into the decision of whether or not someone is suitable to lend to. Having these 4 things that almost all banks take into consideration before giving out loans will greatly increase your chances of receiving a stamp of approval on your mortgage application.
Your credit history is a huge part of whether you’ll be approved for an additional line of credit in the form of a mortgage. Things like credit cards and car loans all contribute to your credit worthiness. You should check to see what your credit history looks like before applying for a loan that may be outside of your means.
Making a strong impression when visiting with a bank employee about a loan is extremely important. Although banks make most decisions based on bottom-lines, if you don’t make a good first impression with the bank, there’s a slightly higher chance that your loan will be denied. Be cordial, dress well, and thank the bank employees for their time to ensure you get an upper-hand when they pass the application on to their supervisor.
Proof of Income/Expenses
Along with a solid credit history, banks also like to ensure that their loans are issued to people capable of paying them back in a timely fashion. Loans are risky for banks to issue, so make sure you have a large enough income to cover the cost of a monthly mortgage. A good rule of thumb to follow is that your monthly earnings should be 3 times that of your mortgage payment. On your mortgage application, you will also be required to express your monthly expenses. Banks use a formula to determine whether your monthly income is large enough to cover both a mortgage and your current monthly expenditures.
Finally, banks like Clydesdale Bank in the UK and WellsFargo in the USA (and others) will consider how much equity you have. Equity is a measure of your total net worth and banks use it as a way of determining how risky a mortgage may be to give out. Should you fail to repay your loan, a bank must determine whether they can sell the house to cover the value of the mortgage that you default on. This, along with other equity you may have, helps a bank form a complete picture of your financial soundness.
Applying for a mortgage is a huge step in everyone’s life and isn’t something you should rush into. Having your financial history in good standing will make the process of applying for a mortgage much easier.