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How do mortgage lenders verify income?
A mortgage is a huge financial commitment, so it is important that your lender is aware of your income to check you are able to afford your mortgage repayments.
Since the financial crash, mortgage lenders have been far more cautious about the information they will accept from a borrower. To get a mortgage, you must be able to prove your income will more than cover your mortgage payments and other expenses. Therefore, lenders require evidence that your income is stable and regular before approving your mortgage.
To make sure this information is accurate, most lenders carry out a credit check, ask for bank statements and payslips. If your income is non-standard, it can be less straightforward.
What is income verification?
Mortgage lenders require you to provide proof of income so that they can verify your details are correct. Employees with continuous employment, contract workers, and self-employed people will all need to provide evidence to confirm income when they apply for a mortgage
Depending on the type of income and the mortgage provider, you may be asked to show payslips, tax year overviews and tax calculations, bank statements, a tax bill, or maybe your current contract. This information will be used along with other financial details to assess how much the lender is willing to lend you.
Any number of factors could affect how much a lender is willing to afford you, including how much they value the property, debt payments, your credit record and affordability.
How can I prove my income?
To make sure you can provide proof of your income, it is essential to keep the following documentation. Remember, some lenders will ask for additional information depending on your circumstances - for example, if you are self-employed.
Some lenders will check your bank statements provided with your mortgage application line-by-line to check for irregular transactions, for example, evidence of spending on gambling websites.
Depending on the lenders and your circumstances they may ask for:
- Three months of payslips
- Two years of P60s
- Recent bank account statements for at least the last three months
- Company accounts
- If you have just started a job, lenders may ask to see your employment contract
- Tax year overview / Self-assessment tax return (if you're self-employed)
What does a mortgage lender look for on bank statements?
When banks check your personal account as part of a mortgage application for proof of income, they want to check how much income you have and that it matches what you have stated on your mortgage application. They will also look for any unusual transactions or charges you have made.
In the days of online banking, providing proof of income to a lender is relatively straightforward, as you can download your bank statements straight to your phone, tablet or computer in most cases.
How many payslips should I provide?
This will vary depending on the lender. Generally, lenders will be looking for three months of payslips and two years of P60 statements, although you may be able to find a lender who will accept a shorter period of time.
Can you lie about income on a mortgage application?
It is important to be completely honest when filling out a mortgage application.
The last thing you want is to be approved for a mortgage, knowing you won't have enough income to cover your monthly payments and then fail to make the repayments. This could lead at best to repossession of your property and at worst bankruptcy.
If you lie on your application, it is more than likely you will be caught out at some stage. This could mean the loss of your home and homelessness, not to mention any legal ramifications that exist if the lenders think there has been evidence of mortgage fraud.
What happens if you can't provide evidence of income?
If you cannot provide the lender with evidence of your income, then chances are they won't approve your mortgage or they will set such high requirements as to make it impossible for you to qualify.
This is because they need evidence that you can afford your mortgage repayments and it would be too big a risk if they couldn't see any way of doing this.
If this is your situation, it may be possible for you to get a mortgage with the help of a guarantor, who will vouch for your income and will be legally obliged to step in if you are unable to make mortgage repayments.
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Proof of income for the self-employed
Many people who are self-employed or limited company directors can struggle to get a mortgage, especially if they are new to self-employment. Annual tax returns are an essential part of proving income for a self-employed person. Most lenders will want to see a minimum of two years of trading, ideally with a stable and increasing income.
When applying for a mortgage as a self-employed individual, you may find it helpful to have an accountant prepare your tax returns.
What is verifiable income for a mortgage?
What is classed as verifiable income will depend on the individual mortgage lender.
The most acceptable income is one that is gained through regular, long term employment, with a stable salary. For people with non-standard incomes, for example, if you work mainly on a commission basis, are self-employed or own a business, income verification becomes less straightforward.
In cases where a mortgage lender is reliant on non-standard income alone to validate a mortgage, they will likely ask for more information. For example, high earners who don't have a traditional salary or those on benefits with a low household income could be asked to provide additional evidence. If you are self-employed and earn an irregular income, it is even more important to be able to show stability.
What credit score do I need for a mortgage?
There is no single credit score that will guarantee you get a mortgage.
Most mortgage lenders are more concerned with the age and severity of any credit issue, although they might have a minimum acceptable score. If you're looking to get the best deal on your mortgage, then making sure your credit record and score is in the best possible condition is essential.
If your credit score could be improved, there are several steps you can take:
- Check your credit record online with the major agencies, understand what is driving your score and check for any inaccuracies.
- Make sure you're registered on the electoral roll.
- Use credit wisely and make repayments on time! This will help to demonstrate to lenders that you are a reliable borrower.
What proof of income do I need as a contractor?
For contractors, mortgage providers will want to see a copy of your employment contract and ideally a solid track record of continued employment over time.
If your industry is seasonal or your work history is patchy, this could indicate to mortgage lenders that your income is not as stable. They'll want to see that you are able to afford your mortgage repayments both now and in the future.
Can I get a mortgage without proof of income?
Following the financial crash (credit crunch), you are no longer allowed to self-certify your income, however, you may find that some buy-to-let mortgages are marketed as self-certified.
This means that these mortgages do not require your accountant to calculate your monthly income and just requires you to sign a self-declaration and pay a higher premium than for an equivalent standard mortgage.
What about online mortgage calculators?
Online mortgage calculators can be extremely useful to provide an estimate of potential borrowing when you're searching the mortgage market.
However, you need to keep in mind that these provide an estimate only, and it will be up to the lender to decide the maximum loan they are willing to lend. Different lenders will have separate income requirements and will take other factors into account, such as your credit rating. This is one of the reasons why it's important to get the right advice, as UK lenders are different and having an experienced mortgage broker by your side will increase your chances of mortgage approval.
If the lender decides that the amount of mortgage you can afford is too high, they will ask you to reduce your borrowing. This might mean choosing a cheaper property or increasing your deposit.
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