What does the bank check when I take out a mortgage?
When the bank lends money, it wants to be sure that you can pay the monthly cost, which mostly consists of interest and amortization. The bank also wants to know that there is good security for what you want to borrow.
You and your potential co-applicant must have a job with an income that is large enough to pay the cost of the loan each month. Even if the interest rate is low right now, sooner or later it will be raised. If you have a variable interest rate, you want you to be able to pay even if it goes up, which is why the banks always expect a higher interest rate than the one you are paying right now.
Your income must also be sufficient to repay, that is, repay the mortgage. Today there are rules for when you have to repay your mortgage.
If the loan is more than 50% of the value of the property, you must repay at least 1% of the loan amount per year.
If the loan is more than 70% of the value of the property, you must repay at least 2% of the loan amount per year.
If the loan is more than 4.5 times your and your potential applicant’s annual income, the repayment requirement means that you must repay an additional 1% per year. Ie At most, you may need to repay 3% per year of the loan amount.
The mortgage ceiling introduced in 2011 also means that you may not borrow more than 85% of the value of the new home.
What is Credit Rating?
The bank also wants to know that you are well behaved and have organized finances. Therefore, a credit report is taken, which shows, among other things, that you have a fixed income, how big it is and whether you have unpaid bills that have gone to the Crown Prosecutor.
Keep in mind that for a short period of time many credit information can be interpreted as being an active lender. Even if you do not take out new loans, many credit information can in many cases be interpreted by the bank as having a messy economy or financial problems. Therefore, it is good to know that Wise Men of Botham only takes one credit report to compare loans with several different banks. Unlike if you would go and apply for loans from several banks yourself to compare.
The assessment of your creditworthiness also includes your loans, which must be taken into account in order for the bank to get a complete picture of your finances and ability to pay.
What is security?
For the bank to know that it can get its money back is the home you buy collateral for your loan. The mortgage ceiling from 2011 means that you can at most borrow 85% of the value of the new home.
You can also increase the security of the loan by having one or more co-applicants. You and the co-applicants are then, individually, fully liable for the entire loan.
The same is true with the guarantors.
Your income must be large enough for you to be able to pay interest and amortization. It should also be sufficient to cover these costs should the interest rate rise.