I want a homeowner loan - what affects my eligibility?

What affects my loan eligibility?

Homeowner loans come in all different shapes and sizes. While owning a home means you’ve passed the first hurdle, there’s a range of other factors that affect your eligibility.

Your credit history

Like any type of borrowing, your credit history will play a significant role in your eligibility. Put simply, lenders look at your credit history to see if you’re a responsible borrower – in other words, whether you’re likely to meet your repayments or not.

Lenders might not approve your application if your credit file has any:

• Missed or late payments
• County Court Judgements (CCJs)
• Bankruptcies
• Payment plans like Individual Voluntary Arrangements (IVAs)
• Defaulted accounts

A poor credit history could affect your homeowner loan application. When it comes to eligibility, the best homeowner loans (the ones with really low interest rates) are usually available to people with spotless credit histories. But that doesn’t mean you can’t apply for a bad credit homeowner loan.

The difference? You might see higher monthly interest payments. That’s because the lender is balancing out the risk of lending to you with higher interest rates. 

The good news is that the interest rates are still likely to be lower than credit cards or personal loans. If you choose to spread your homeowner loan over a longer term, you could still benefit from lower monthly repayments, however the total amount you repay will be higher. 

Your mortgage balance

The type of homeowner loans available to you can depend on your mortgage and how much you’ve paid off. If you’re a homeowner, you’ve probably already heard of the term Loan to Value (LTV).

When it comes to homeowner loans, the LTV rate is important. Simply speaking, LTV is the percentage of your home’s value you can secure the loan against.

Let’s say your home is worth £100,000. A loan with a 75% LTV would allow you to borrow up to £75,000.  

You’ll need to check your mortgage balance before you apply for a homeowner loan. You can do this easily by either checking online or phoning your lender. If you’ve only paid off a small amount of your mortgage, you might not have much available equity (the value of your property minus your outstanding mortgage balance). 

The less equity, the less you may be able to borrow. If your mortgage is relatively new, you might not be eligible for a homeowner loan. 

Your personal finances

So, you’ve found a homeowner loan that suits your circumstances… but can you afford the repayments?

Your affordability is a major factor in any lender’s decision. When you apply for a homeowner loan, the lender will take your income into account. That’s because they want to make sure you can afford the monthly repayments with your current income. 

Before you apply for a loan, check to see what your repayments might look like once you’ve broken it down by month. Our loan calculator can help.

Similar to how lenders check your credit history, they’ll also take a look at your spending over the past few months. If you can prove that you regularly live within your means, you’re more likely to be accepted for a homeowner loan. 

If you’re thinking of applying for a homeowner loan in the near future, it might be worth reviewing your finances. For example, cancelling subscriptions you no longer use or reviewing your utility bills can free up your finances and boost your affordability.

Your home

How much your home is worth will also impact the type of loans available to you. The higher the loan LTV rate, the higher the percentage of your home you can borrow up to. 

And, by default, the more your home is worth, the more you can borrow. 

It’s that simple. Imagine you’ve found a loan with a 75% LTV. Depending on the lender, this is how much you could borrow:

If your home is worth £100,000, you could borrow up to £75,000.

If your home is worth £200,000, you could borrow up to £150,000.