Mortgage affordability represents how much you can borrow. On a residential property, your level of income is the primary factor which determines the size of mortgage available to you. Income verification is part of the standard underwriting process once a full mortgage application is submitted. Before providing a mortgage offer, lenders require supporting documents to evidence the income keyed on the application.
Traditionally, mortgage lenders required three months’ payslips to verify employed income. However, the majority of lenders now only require one months’ payslip and there are many lenders happy to use new and future income.
For prospective borrowers who have recently started a new job or received a pay rise, most lenders will simply require the first months’ payslip showing the new or increased salary. A copy of the employment contract or pay rise letter may also be requested. For those who are due to start a new job or due to receive a pay rise, there are lenders happy to use the new income before it has begun. The employment contract or pay rise letter are required for income verification in these circumstances.
If salaried income varies, lenders will require confirmation of the contracted employment details. This is typically ascertained through the employment contract, a letter from the employer or a pro-forma provided by the lender to be completed by the employer. For additional income including bonus, overtime, commission and allowances, further payslips are a standard requirement for income verification. Where this income varies, lenders will generally look to use an average over a specified period.
For those who are self-employed, whether sole traders, partnerships, LLP partners or limited company directors, alternative documents are required for income verification. Tax calculations and corresponding tax year overviews are the common requests with some mortgage lenders able to use full accounts for limited company directors.
Understanding your mortgage affordability is the best place to start when looking for a new mortgage – whether you’re a first-time buyer or looking to move home. A mortgage in principle provides an indication of how much a bank is willing to lend and is often required by estate agents or developers. If you’re looking to know how much you can borrow, want to discuss what documents you’ll need to provide or you have any other mortgage and life insurance query, we’re here to help with free, professional advice.