Owning your own home is often quite high up on the wish list of many people. We can find ourselves in many different financial situations though. Some of us have recently lost jobs. Others have fallen through the gaps of financial support. The question is though, are you able to still get a mortgage if you have a tricky financial situation? How can you finances affect your chances of getting a mortgage? Can you get a mortgage on benefits? Let's take a look!
What is a mortgage?
Firstly, we need to establish what a mortgage is. Before signing on the dotted line of any financial agreement or arrangement, you need to know exactly what these things are. The definition of a mortgage is;
A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.
So, in layman's terms, you with mortgage lender that they will give you the money to buy a property, which you'll then repay every month. The benefit for the lender is that they'll end up with more than they gave you, due to the interest on the loan. This means a mortgage to the value of £150,000, with an interest rate of 1.5%, would end up costing you £179,971. That's almost £30k of interest. This is why mortgage lenders exist, to make money. But for the home owner, this is usually the only way of getting a property, because who has £150,000 to spend outright? Mortgages give many people the opportunity to own their own home.
What type of benefits might you be on?
As mentioned, there are people who are finding it difficult in the current climate. The financial situation of the global pandemic has changed the bank balance of a huge number of people. This has meant that some people have ended up on benefits like Universal Credit. That isn't the only reason people are on benefits though. It could be disability benefits, jobseekers or in the worst case, benefits such as widowed parents allowance. It's also worth noting here that lenders cannot reject your application just because you are disabled.
There are many issues with the benefit system here in the United Kingdom and this isn't the time to get into the ifs and buts of cuts from the government. However, the question remains of can you get a mortgage on benefits?
Can you get a mortgage on benefits?
The simple answer is yes. You can. But it might not always be as simple as saying yes. There are mortgage lenders who will consider applications from those who are receipt of state benefits. Similarly though, there are other lenders who will be a firm no. They just won't consider your benefits as a form of income and so won't take that into consideration what looking at your finances. Some may only take a percentage of those benefits into consideration.
So, it's a case by case of looking at mortgages and benefits. Some lenders will be happy to lend you the money. Others will decline your application. It might be an idea to use a mortgage broker who has experience in this area. They'll then be able to approach the right lenders where there is more chance of getting a mortgage. So, can can you get a mortgage on benefits? Yes. However, it might come down to the amount of benefits you are in receipt of and the amount of money you wish to borrow.
Can you get a mortgage with debt?
Top ways to improve your chances of getting a mortgage
Of course, there are always ways to improve your chances of getting a mortgage. Sometimes you look at getting a mortgage as reaching the top of a mountain. The elation of getting to the peak is phenomenal. But actually getting up there is hard. There are ways to give yourself a better chance of getting a mortgage though.
They Won't All Want You As A Customer
Firstly, don't assume every mortgage lender will want you as a customer. When we get our mindset right that this might be a challenge, you're less likely to get stressed and upset with declined applications. Make sure that you have registered to vote. The electoral roll is part of identity checks, so even if you don't plan on voting, registering to vote is important when you're looking at getting a mortgage deal.
Your Credit Score
Mortgage lenders will look at your credit score when they are potentially figuring out a mortgage deal for you. Getting rid of any errors on your credit report is the first thing to do, followed by improving the score. You also want to delink yourself from any past partners or people you had joint finances with. This is because someone who is no longer in your life can affect your chances of getting a mortgage as lenders will also look at their score if you are linked. If you can give yourself a few months to get your credit score improved, you will likely get a much better deal than you would have done without giving yourself that time.
Your Paperwork
Stay out of your overdraft, cut back on your spending and make sure you have access to all your paperwork. Paperwork is a huge part of mortgage applications. Lenders will want to see your tax returns, your pay slips, your P60 tax form. You'll need to show proof of who you are, proof of address, proof of deposits. Having a file with everything you need will make it easier and cut back on stress too.
Your Deposit
You will also need a deposit. Mortgage lenders will give you money for the house, but you need to put a deposit down. Different lenders will give you different agreements depending on the deposit you put forward. Generally, the higher the deposit, the better the deal. The brackets of deposit will help you get a better arrangement and potentially lower interest rates too. That means that if you've saved up £14,500 for a deposit, see if you can find an extra £500. Getting your deposit to £15k should give you a better deal.
So to answer the question of can you get a mortgage on benefits? The answer is yes, but some lenders will automatically say no whilst others will be happy to have you as a customer. Be sure to put some time and effort into improving your financial situation and credit score so you look more attractive to those lenders who will give you a mortgage. Happy house hunting!