What Banks Look for When Reviewing a Loan-to-Value Application?

Every earning person wants to get a good home for himself. If you are financially sound, you can spend a large sum of cash and get your home in one go. Most people living in the UK do not go for this option because it is not that easy to implement. Hence, they opt for financial assistance and approach banks.  It is important to understand the process of banks. What do you need to do to get your application submitted? What kind of down payment has to be made? How can you increase the chances of getting the application accepted It is important to understand the process of banks? What do you need to do to get your application submitted? What kind of down payment has to be made? How can you increase the chances of getting the application accepted? These are some questions you have to focus on. Banks have a proper system and a sequence is followed.

Important factors considered by banks

Calculate LTV ratio

Various financial figures are checked before an applicant is granted acceptance. One of them is the LTV ratio. The formula of LTV is given as.

LTV = Mortgage Payment / Total Value of Property * 100

The LTV ratio can be calculated easily using the only calculator on calculators.tech.

LTV defines the percentage of a total property price that is taken as the mortgage.

Looking at an example

Consider that you wish to buy a studio apartment that has a cost of £ 150,000 and £ 50,000 is being paid in the form of a down payment. This means that £ 100,000 would be taken in the form of a mortgage. Hence, the value of LTV would be given as

LTV = 100,000 / 150,000 * 100

LTV = 66%

The maximum percentage for LTV should be 80. If the percentage is more than 80, there are high chances that your application will face rejection. There is a very simple reason for this. If you are unable to pay even 20% in the form of an advance payment, it would be hard for you to pay the regular sum of mortgage payments. This is the angle that most loan applicants do not consider. When you are submitting your loan application, keep a check on the mortgage percentage. The maximum scale is 80%. A lot of applicants get their applications rejected because they apply for a higher mortgage sum. This is why it’s important to check out a mortgage calculator such as the one via https://www.simonconn.com/french-mortgage-calculator/ to ensure you can lend the amount you’re hoping for. If the LTV percentage is more than the maximum permissible percentage, there are rare chances that your application would be approved.

There are a lot of and ratios and calculations that go into approving an application when the LTV is higher than the maximum permissible percentage. Lenders and banks often calculate these by taking the information you give them and passing it through mortgage crm or mortgage analysis software. This would compare all the variables and show the lender the likelihood of the mortgage being paid back in full. Try not to get intimidated by these calculations. For the most part, it means that if a mortgage application is rejected, the numbers were simply not in your favor.

The analysis above is straightforward and if you still don’t understand, then you need support from professionals. A good place to start if you are thinking of buying a house is the SoFi website, as it has support and resources to help you in your home buying process.

Stability of employment

Loan applicants have to check the stability of their employment. Consider that you have been working for just a few months and apply for a loan application. Now, here, you need to see the property you are selecting. If you have been working with stability for a long time, it is a positive aspect for banks as well. Having a stable employment option means that you would be able to pay the mortgage payments with ease. On the other, if you do not have a confirmed employment option, it would become hard to make mortgage payments for a long span of time.

  • Banks follow a system when they are going through a loan application. They have a time frame for approval or decline and a hasty approach is not used in this relation. People with stable employment options have greater chances of getting the mortgage sums.
  • If you do not have a stable employment option, it is better to apply for a smaller sum as mortgage. Most people only have a look at the amount being paid as advance. They do not check the mortgage sum which would have to be paid at the end of each month.

Monthly earnings

It is obvious that your salary / monthly earning sum would be checked through a loan application. If you are earning a high sum of money, you can apply for a larger mortgage sum. In other words, you can look for more expensive property. The mortgage payments are made on a monthly basis so you need to check the amount you are getting at the end of each month. The monthly earnings should be large enough to accommodate the regular expenses as well as pay the mortgage sum.

Self-Analysis is important

If you are applying for a mortgage loan for the first time, make sure that you have gained enough information. For instance, in the UK, the interest rate changes when the applicant is applying for his second loan. The stamp duty amount should be considered before you reach a conclusion about the property value.

  • In the UK, if you are getting your first home loan, there is no stamp duty if the home value is less than or equal to £125000. In such cases, loan applications do not have to pay any amount as stamp duty. On the other hand, the conditions change if an applicant is buying his second home.
  • If you are applying for a second home loan, you have to pay a stamp duty of 3%. This is something that a lot of loan applicants do not know about. It does happen when people do not check the conditions properly and then apply for a second loan.

Summing It Up

Like any other country, the UK has its regulations for financial assistance. You should go through them before applying for a mortgage loan. Usually, people do complain about their loan applications getting rejected. One of the prime reasons is that people do not check the conditions which need to be fulfilled. For instance, you should apply for a maximum mortgage percentage of 80 percent. Beyond that, the application gets rejected. A lot of people do not take this factor into account and apply for even a 90% mortgage. Once their application is checked, it is rejected simply because the mortgage percentage is too high. Paying the maximum percentage as the down payment is a good alternative because it reduces the financial burden on an individual. For instance, someone who pays 40% in advance would have a lesser burden than the one who pays 20% upfront.

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