Understanding our mortgage and commercial loan underwriting guidelines will help you understand your loan options when applying. The primary items reviewed in determining whether to approve or decline a loan application have been outlined below...
We need to be assured that you have an income that can service the mortgage payments over the long term. Primarily, our main focus is on either ‘employed’ income (PAYE/commission/bonus) or ‘self-employed’ income (accounts/tax returns). However, we can take other forms of income into account which could include rental income, pension income, a car allowance, maintenance payments, tax credits or child benefit.
This is one of the most important variables we examine because it is used to repay the loan. Income is reviewed for the type of work, length of employment, educational training required, and opportunity for advancement. We will look at the source of income and the likelihood of its continuance to arrive at a gross monthly figure.
i. Salary and Hourly Wages
Calculated on a gross monthly basis, prior to income tax deductions.
ii. Part-time and Second Job Income
Not usually considered unless it is in place for 12 to 24 straight months. We view part-time income as a strong compensating factor.
iii. Commission, Bonus and Overtime Income
Can only be used if received for two previous years. Further, an employer must verify that it is likely to continue. A 24-month average figure is used.
We will generally conduct a search on your credit file to make sure that the payments on current and previous mortgages, loans, debts, etc, have been made. However, we may consider a very small number of mortgage arrears or late payments on other loans or credit cards.
Generally, the greater the amount of deposit you can put down, the better the loan product will become approved and made available. The minimum that is generally accepted is 5% although there are some schemes that may accept less. More skin of the borrower in the property or project being financed, the better the chances of approval.
The property is the security against the loan and so we will typically undertake an internal inspection and valuation of the property to make sure that it is adequate for our security. No lending will be provided for secured loans if your security property does not provide enough equity to lend against.
We will need to be satisfied that the expected rent to be received is greater than the mortgage payment. As an example, if the mortgage payment is £1,000 per month, we will typically require that the expected rent to be 125% of this, i.e. £1,250 per month.
In addition, we will require evidence of your personal income from employment or self employment and will require this to satisfy a minimum amount, for example £20,000 per annum. However, we may waive the minimum personal income requirement altogether.