Whether you’re looking to fund home improvements, consolidate unsecured borrowing or release some of your equity – a Homeowner Loan could help you make it happen.
Before you take one out, it’s important you make an informed financial decision. That means understanding the lending process and the steps that must be taken to apply and qualify for a loan.
Below we’ll guide you through what you need to know when applying for a homeowners loan.
What is a Homeowner Loan?
A Homeowner Loan – also known as a secured loan or second charge mortgage – allows you to borrow money using your property as security.
Loans for homeowners are available to UK residential mortgage holders, even if your credit history isn’t perfect. You may also be able to borrow more at a lower interest rate than other types of loan. The amount you’re allowed to borrow will depend on the value of your property.
There are lots of reasons people take out Homeowner Loans – consolidating debts, completing home renovations, tying the knot, or even funding a child’s education. Whatever it might be, a Homeowner Loan could be the solution you’ve been looking for.
As with any loan, approach with caution and do your research. Ask yourself if you’ll be able to stick to the repayment terms.
It’s important you always pay on time with a Homeowner Loan, your home could be at risk if you don’t. It’s a good idea to talk to a broker first – they can recommend the right option for you. You can also use a Homeowner Loan calculator to see how much you could borrow and end up paying.
Who can apply for a homeowner loan?
To be eligible for a homeowner loan there are a few boxes you need to tick. You must own a property. It must have an outstanding mortgage, and have enough equity to borrow against.
Equity is the difference between the market value of your property and the balance left on your mortgage. The amount of equity you have will affect how much you can borrow, and the length of repayment you’re offered.
What criteria do lenders look at?
All lenders have their own criteria, but here are some of the main things they consider when assessing your application:
Property value
The market value of your property will directly affect the amount you can borrow. A higher property value means a higher potential loan amount.
Equity
Equity is the difference between the market value of your property and the balance left on your mortgage. The more equity you have in your home, the more attractive you’ll be to a lender. This is because there is less risk for them.
Credit history
Lenders will always check your credit score to understand your financial history. Use an online tool such as Experian to check yours before applying – this won’t affect your score. But if you do apply for a loan and are turned down, it could have a negative impact on your score.
Income and affordability
Lenders will always ask for your individual and household income before approving a loan. This is to make sure you can meet the repayments.
They will also want to know about your other regular payments – mortgage, loans, cars on lease, etc – plus how many dependents you have. You may be asked to give proof, so never exaggerate your income or play down your monthly costs.
What documents do you need for a homeowner loan?
Proof of identity – like a valid passport or driver’s licence.
Proof of residence – a recent utility bill or bank statement will help prove you live where you say you live. If you don’t have these, you may need to supply land registry documents or mortgage statements.
Proof of income – any recent invoices or payslips should be enough. If you’re self-employed you might need to provide your latest tax return.
Bank statements – to help your lender understand your income and expenses. You’ll need to provide three months’ statements to ensure that you’re able to afford the loan.
Credit history – they should be able to scan this themselves. On very rare occasions you might have to provide your own credit report, you can get this 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, never just go with the first quote. Compare as many different offers as you can before deciding.
Loan repayment terms – choose the ones that make the most sense to your current situation. For example, if you can manage higher monthly repayments, consider a shorter term. You’ll often end up paying less overall.
Repayment protection – giving you peace of mind. Insurance products like these make sure payments can be made, even in times of personal and financial difficulty such as critical illness or redundancy. Talk to a broker if you’d like to know whether this would be right for you.
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.
Speak to a financial adviser or a mortgage broker who can provide guidance and help you find the right loan for you.
Want to learn more about Homeowner Loans? Talk to one of our trusted broker partners.