If you’re planning on making a mortgage application soon, it’s a good idea to consider what income and outgoings you already have.
As you would expect, mortgage providers want to make sure the people they lend to will be able to afford the monthly repayments, so they will go through your income and outgoings carefully when they are deciding whether or not to offer you a mortgage. In particular, they will look at fixed outgoings – like your car insurance, childcare and existing credit commitments.
Below, we’ll discuss whether or not a personal loan could affect your mortgage application if you’re just considering taking one out or what could happen if you’re already paying one off.
If you’re thinking about taking out a personal loan
When you’re going through a mortgage application, your lender (or broker) will look at your outgoings. Anything from what you spend on existing credit commitments, such as loans and credit cards, to how much you spend on new clothes, groceries and meals out will be taken into consideration.
Because of these checks, taking out a personal loan in the run up to applying for a mortgage could make it harder to be accepted for the mortgage. The loan repayments will reduce the amount of cash you have free each month to cover your mortgage repayments. Even if you are able to get a mortgage, it may be for less than you had hoped for.
For this reason, if you are thinking about buying a house, it makes sense to hold off taking out a personal loan. Once your mortgage is up and running, you could look again at the loan – but only if you are sure you could afford to repay both it and your mortgage – not just at current interest rates, but also if they were to increase.
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If you have already got a personal loan and you are thinking of applying for a mortgage, there are a couple of options:
You could either look to pay off the loan in full (if you are able to), then wait about 3 months for the loan repayments to clear from your bank statements before applying,
Or, if your loan is due to end soon anyway, delay your mortgage application until you have made your final payment.
If neither of these is possible and you need to go ahead with your application then be aware that your loan may reduce the size of mortgage you can qualify for.
Ultimately, the decision as to whether or not your mortgage application gets accepted is in the individual lender’s hands. Whether or not they choose to lend to you will depend on a variety of different factors unique to their unique lending policies.
Consider using a mortgage broker
If you are thinking of applying for a mortgage, consider using a mortgage broker like Ocean. We could take a lot of the hassle out of the application process, and our insight into the industry means we can offer you personalised advice based on our large panel of lenders. We’re familiar with each lender’s affordability criteria, so we’ll be able to advise you on which lenders are most likely to look favourably on your personal circumstances.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.