How to Apply and Qualify for a Homeowner Loan

We’re always looking at ways to better ourselves. For some, that could mean reaching for increasingly ambitious career goals, while for others it could mean striving for more personal growth targets.

For others, however, it’s often something as simple as renovating the house or addressing their financial well-being. For these people, a homeowner loan could be a very powerful tool, providing access to funds that will allow them to grow and realise their plans.

Making an informed financial decision, however, means understanding the lending process and the steps that must be taken to apply and qualify for a loan. Here, we’ll be guiding you through all the eligible criteria, necessary documentation, and any other factors that should be considered when applying for a homeowner loan.

What is a Homeowner Loan?

Homeowner loans are, as the name implies, designed to help homeowners borrow money against the equity they have in their homes. This sets it apart from a mortgage, as the funds are not being used to purchase a property. Many of our customers choose homeowner loans to spruce up their homes rather than moving before eventually selling them on for a profit. The amount you’re allowed access to will also depend on the value of your property.

By design, this is a secured loan as your property is being used as collateral. Unfortunately, this also means the lender could have the right to repossess your home and sell it to recover their losses in the event you’re unable to meet your repayments. On the flip side, however, this safety net for the lender means that homeowner loans are often more generous than most unsecured loans and have longer potential repayment terms.

Whether you’re consolidating existing borrowing, completing significant home renovations, tying the knot, or even funding your children’s education, if you are looking for immediate access to substantial funds, a homeowner loan could be the financial solution you’ve been looking for. They are flexible, relatively easy to apply for, and could give you access to the funds you’ve been looking for.

Of course, as with any loan, however, it’s important to approach with caution and do your research. Ask yourself if you’ll be able to stick to the repayment terms. Always assess the risks and borrow responsibly, because if you can’t meet those obligations, you could lose your house.

We’d also recommend comparing as many homeowner loan offers as possible before deciding on a solution that works for you. Talk to the lender or a broker and consider using a homeowner loan calculator to visualise how much you could borrow and end up paying.

Who can apply for a homeowner loan?

To be eligible for a homeowner loan, you must own a property, with an outstanding mortgage, and have sufficient equity to borrow against. Equity is calculated as the difference between the market value of your property and the outstanding mortgage balance and can be seen as your starting point for testing how much you can afford to borrow and the length of repayment you’re offered.

What criteria do lenders look at?

Knowing what lenders are looking at and for is crucial when applying for a homeowner loan. When assessing any application, lenders will generally consider the following:

Property Value

The market value of your property will directly affect the amount you may be eligible to receive from your loan with a higher property value leading to a higher potential loan amount.

Equity

The more equity you have in your home, the more attractive you’ll appear as a lender as there is less inherent risk for them. That means potential borrowers who have paid off a fair chunk of their mortgage already are going to be looking at the best terms and the largest loan offers.

Credit History

With any loan application, the lenders will always check your credit history to understand your financial history. Use an online tool such as Experian to check your credit score before applying, as this won’t affect your credit. If you apply for a loan and are denied because of your credit score, however, this could have a negative impact on your score.

Income and Affordability

Lenders will always ask for your income (individual and household income) before approving a loan to ensure you’re able to meet the repayments. They will also want to understand any other regular payments you are making (mortgage payments, unsecured loans, cars on lease, etc), as well as any dependents you may have. You might also be asked to provide proof so it’s wise to never exaggerate your income or play down your monthly costs.

What documents do you need for a homeowner loan?

Proof of Identity – A valid passport or driver’s licence should be more than enough to verify your identity.

Proof of Residence – A recent utility bill or bank statement clearly displaying your current address will help prove you are who you say you are, and you live where you say you live. If not, however, you might be asked to provide original land registry documents or mortgage statements.

Proof of Income – Any recent invoices or payslips should be enough to prove you earn enough to apply for the loan. However, if you’re self-employed you might be asked to provide your latest self-assessment tax return.

Bank Statements – To help your lender understand your income and expenses, you’re required to provide three months’ bank statements to ensure that you’re able to afford the loan you’re applying for.

Credit History – They should be able to scan your credit history themselves but on very rare occasions you might be asked to provide your own credit report, obtained from a credit reference agency.

What else do you need to consider when applying for a homeowner loan?

Interest Rates – As with any major financial decision you should never automatically go with the first quote. Compare as many different offers as you can before making a decision.

Loan Repayment Terms – Go with the terms that make the most sense to your current situation. For example, if you think you’ll be able to manage higher monthly repayments you might want to consider a shorter term with higher monthly repayments as you’ll often end up paying less overall.

Repayment Protection – Insurance is all about peace of mind and ensuring payments can continue to be made even in times of personal and financial difficulty such as critical illness or redundancy.

Homeowner Loans with Pepper Money

Secured homeowner loans could be a popular option for those who can meet the criteria but it’s also important to consider all available options and speak to a financial advisor or a mortgage broker who can provide guidance and assist in finding the most suitable loan option for your needs.

If you want to learn more about homeowner loans, get in touch with one of our trusted broker partners.