Mortgage A to Z

Knowing how a bank assesses your mortgage application and what they’re looking for gives you more power to get your application in order.

Banks assess your application using the 4 Cs: Capital, Capacity, Character and Collateral.

Get these right and you’ve boosted your chances of approval.

Capital

Have you got enough skin in the game?

Banks mainly focus on your deposit and your debts. They also consider your assets.

The bigger your deposit, the better chance of getting approved.

You can get approved with as little 5% deposit, but the criteria is strict.

A higher deposit may also mean you get more options on who will lend to you, and maybe even a lower interest rate.

Deposit quick tip: Open a bank account today and label it “House”, then set up an automatic payment into it.

Capacity

Can you make mortgage payments?

The calculation is simple: your income minus your expenses.

The more you earn and the less you spend the better.

Banks also add future expenses to the calculation, like house insurance and rates.

Finally, banks want to know if you can still afford a mortgage even if interest rates increase, so they test your affordability based on an interest rate of 2-3% above the current interest rates.

You don’t need perfect bank statements to get approved – we can explain to the bank how you can reduce some of your expenses.

Capacity quick tip: Your future mortgage repayments plus rates and insurance will likely be more expensive than your current rent. Each week put the difference between your current rent and future payments in a savings account to prove you can afford the increased payments.

Character

What’s your financial behaviour?

Banks look at your overall position, your bank statements and your credit check.

Do you save for the things you want, or regularly apply for credit?

Do you pay all your bills on time?

Do you run all your accounts with positive balances and always have a buffer?

Are there any serious issues with your financial history?

Character quick tip: Stop applying for more credit, pay all your bills on time and save a little buffer in your accounts.

Collateral

This is the house you’re buying, which is the bank’s security over your mortgage.

If you don’t pay your mortgage, the bank will sell this house to get their money back.

The larger the deposit you have, the more obscure, run-down or harder-to-sell house the bank will consider.

With a small deposit, the bank will probably only consider tidy well-maintained houses.


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