Firstly, can you get a mortgage on a low income?
Yes, it is possible, but by no means guaranteed, to get a mortgage if you have a low income, but it will likely be more difficult than if you were a higher income borrower. Each mortgage lender will have different lending and eligibility criteria which can affect how likely you are to be approved for a mortgage. Also, the type of mortgage you want to get, and how much you want to borrow, will have an impact too.
Lenders will conduct an affordability check to ascertain if you can manage your mortgage repayments comfortably, without getting into financial difficulty. As part of your application, they will look at your total budget and the size of the mortgage you are asking for, to make sure you can cover:
- The monthly mortgage repayments
- Household bills
- Any other living costs
They will also consider how you would manage if your circumstances changed, or if interest rates were to increase. Keep in mind that some banks and high street lenders may turn down your application if you have a low or complex income. In this case it is best that you can speak to a professional adviser, like our team at Finance Advice Centre, who can potentially help you find specialist lenders with mortgage products that are more suitable for your financial situation, as well as guide you through the application process to give you the best chance of success.
What is considered as income on your mortgage application?
Your earnings are the most important requirement when it comes to your mortgage application. However, a lot of lenders will examine other sources of financial stability when they are considering your mortgage application like child support, or disability benefit.
If you are a contractor or freelancer, some lenders may be willing to consider your savings if you have enough money in the bank. Each mortgage company is different which is why it is a good idea to speak to a specialist adviser from Finance Advice Centre. By doing so you will gain access to someone who knows the market, knows how to assist you with your application, and find lenders that will be most suited to you.
What documents do you need to prove your income?
As part of your mortgage application, you will be required to provide some documentation that verifies your income. These include:
- Proof of identity- a driving licence or current passport
- Physical bank statements- typically from the past 3 months
- Payslips- normally 3 months but it can vary from lender to lender
- SA302- usually 2 or 3 years’ worth if you are self-employed
- P60- if you get bonuses as well as your income
- Utility bills- dated within the last 3 months and must show your name and current address
- Council tax bill- your most recent one
It could take a little while to gather all of these documents so you should start as soon as you can.
How can you improve your chances of getting a mortgage on a low income?
Getting a mortgage when you have a low income can be challenging, but it is certainly not impossible. For example, there are other steps you can take to give yourself the best possible chance of being accepted.
1) Check your credit score
As well as your income, lenders will be looking at your credit score to determine how much of a risk you are to lend to. If your income is low, but you have a good credit rating, this will work in your favour. You should check it regularly and do as much as you can to maintain a high number.
2) Get to grips with your income
In comparison to someone with a salary or fixed income, the amount you can borrow might be tricky to calculate. Lenders will approach this by looking at your annual income from the last three years and take an average of the lowest figure to work out how much you can afford to pay back.
3) Choose the best time
Timing is key, if you can, it is best to wait until your income is more stable (for example if you’re working on a long-term project) before you submit your application. You want to be as appealing as possible to potential lenders.
4) Put down a bigger deposit
If you are a first-time buyer, putting down more money upfront will have a greater impact in offsetting the risk for possible mortgage lenders. It also shows that you are a good saver and could open you up to more competitive deals
5) Work with a mortgage adviser or broker
The mortgage market is big and competitive, it can be especially overwhelming if you’re worried about low income. Some low-income mortgages are not available to you directly as an applicant, they’re only available through brokers. An experienced adviser who knows the whole market and can help you with your application will help you be more prepared and hopefully increase your overall likelihood of being approved for a mortgage.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.