Borrowing Criteria for a Prime Mortgage Loan
Lenders are always looking for borrowers who fit their criteria for lending. In the prime loans market, the standard often includes meeting credit score requirements and being able to provide particular documentation.
However, one of the biggest challenges for borrowers is that no two financial institutions have the exact same criteria for their prime loan applications. As a result, it pays to understand what your potential lender is probably looking for so you can work out how close you'll be to that criteria before applying. Compare lenders to see who best suits your needs and requirements.
What's a prime loan?
The prime loans market refers to the type of financial lending offered by traditional institutions, such as banks. Prime loans are available to people who are considered low risk and unlikely to default on a loan, costing the bank money in the long run.
As a prime loan candidate you may benefit from low interest rates which can significantly impact the overall cost of the loan. It's also likely you'll have been asked to make a reasonable deposit payment and as a result may not need mortgage insurance - an extra monthly cost.
What are prime loan lenders looking for?
- Good credit history - They want borrowers who have a history of making required repayments on time and meeting other loan obligations. Some lenders want borrowers to have a credit score above a certain number, or to see a set number of months or years of good repayments.
- Relevant documentation - Borrowers who can prove their financial status, tax returns and reliable income can prove to the bank that they have the means to make repayments and that this is unlikely to change soon.
- Minimal credit checks - Borrowers applying to multiple lenders, or regularly trying to get a loan are considered risky. Regular credit checks count against a lenders credit score because it indicates that they are unreliable with their spending.
- A permanent job - In line with checking your documentation, lenders want to see that you're permanently employed and it's not just luck that you happen to have been earning in the last few months. You may need to show you've passed a probationary period if you're new to your role, or that you've been regularly attending your role - not taking extended sabbaticals.
- Adequate savings - You'll need to pay a deposit on your home in order to secure a loan, with most prime loan lenders looking at a loan-to-value ratio of 80 per cent or less. Alongside a regular income, lenders want to know that you've got some savings and can afford the purchase you intend to make. They may also want to see you'll have some savings left over once you've paid the deposit, to show you're financially sensible.
What to do if you don't fit the prime loans criteria
If you don't satisfy the criteria, perhaps because you can't provide documentation or don't have a credit history, consider specialist lending or non-conforming loans. There are a range of loans available from lenders who specialise in working with people who don't meet prime criteria. There are low doc loans, for example, for people without much documentation, and bad credit home loans for those who have a poor credit history. With specialist lending, there's no credit scoring and there are a number of alternative documentation routes.
At Red Rock Mortgages, our brokers have access to a wide range of affordable, cost-effective specialist lending solutions. Request a consultation with one of our lenders today.