With any type of borrowing, it’s important that you’re able to repay what you borrow comfortably.
This is especially true with mortgages, as there’s a lot at risk if you fall behind.
It’s for this reason lenders try their best to make sure you don’t run into any trouble with your repayments further down the line.
They do this by looking at your income and outgoings – how much money you have coming in and going out each month. They’ll want to see that you have enough room in your budget to make repayments on the mortgage, which is why a loan might affect your application.
How much spare cash do you have each month?
When you’re paying off a loan, you should have a dedicated amount you set aside to pay the lender each month.
This reduces the total amount of spare cash you have at the end of the month, which means you’ll have less left over to make mortgage repayments.
As the mortgage lender will look at your outgoings, they may decide to offer you less than you hoped for if they don’t think you could afford the repayments on the amount you want to borrow. In a worst-case scenario, they may turn your application down entirely if they don’t think you can afford a mortgage at all right now.
If you’re still paying off a loan, you should have a look into whether you can pay it off before you apply for your mortgage. Then, after around three to six months, your loan shouldn’t affect your mortgage application. Bear in mind that some lenders may charge you for paying your loan off early.
On the other hand, if you’re nearing the end of your loan term anyway, it’s best to wait until you’ve made your final payment before you start applying for a mortgage. This is because all the cash you were using to clear this borrowing can be put towards your new mortgage.
Hold off on taking out a loan for now
Because of the checks the lender will make when you apply for a mortgage, you should try to hold off taking out a loan if you’re going to apply for a mortgage soon.
Taking out a loan means you’re committed to making payments every month, which may reduce your chances of getting a mortgage. Even if you are able to get one, you might not be able to borrow as much as you hoped.
So if you’re thinking of taking out a loan, it’s wise to wait until after you’ve bought a property. If you still have room in your budget once your mortgage is in full swing, you may start to think about taking out a loan if you still need the cash – but only if you can afford the repayments.
You should look at your bank statements to make sure you have the cash at the end of the month to the afford loan repayments – even if your situation were to change. You can use our loan calculator here to work out how much you might pay back each month.
It’s down to the lender
Remember, whether or not your mortgage application is accepted depends on a whole host of different factors.
Each lender will have different policies in place to help them decide who to lend to, but that’s not to say you can’t prepare yourself before applying. Head here to find out how you can maximise your chances of getting a mortgage.
You might find it useful to speak to a mortgage broker like Ocean if you’re worried about whether a loan you have might affect your application. We know about each lender’s criteria and can advise you on which mortgages you’re most likely to be accepted for. Find out more here.
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