Can you receive a mortgage if you have not found employment?

 

 

 

 

Are you out of work and now seeking to apply for a mortgage? The essential aspect while pitting in a mortgage application is proving to your lender your ability to pay back the debt. Since you are between jobs, your application is not in a favourable situation.

Because you do not have a job that ensures some income coming in every month, no lender will give the nod, but having no full-time job does not mean you are absolutely unemployed or all doors to cash coming in are closed.

You may be a freelancer, you may have a part-time job, or you may have another passive income source. Well, it is possible to get qualified for a mortgage, but you will have to provide additional information to prove your repaying capacity.

 

What do lenders expect of you?

Getting approval for a mortgage is not a suck soup. You will have to ensure that you can pay down monthly installments, and since its repayment length is going to last for a long period of time, a lender would also look at your future repaying capacity.

So, this is absolutely clear that they will look at your income and the size of the monthly payment of debt. This will indicate to them if you are able to pay down monthly payments along with your other expenses. Will your living expenses suffer due to mortgage payments?

If so, your request will be turned down. This is because you will keep taking out new debt to pay off another, just like robbing Peter to pay Paul, and in the end, you will make a permanent default, and your lender will be compelled to repossess your house to auction it to release their money.

 

• Debt-to-income Ratio

Another thing they would like to look at is your debt-to-income ratio. For instance, how many portions of your income account for debt payments? You may have taken on payday loans or credit card debt. A lender will see how much you currently owe. 

Mortgage monthly payments are not small. In fact, they will have an extra burden on your budget when you already owe some money. This increases your debt-to-income ratio. If it is 25%, it means a quarter of your income goes toward financial obligations, and if you get approval for a mortgage, it will go up to 30 to 40% depending on the amount. This will, of course, make it harder for you to cover your living expenses.  

Again, you will start borrowing money to fund your recurring expenses and eventually fall into debt. A lender will get into the formality of selling your house. You will not just lose your house, but you will also lose your credit points and perhaps find it extremely harder to get even a small loan approved for some years. 

 

• Now comes the deposit size

If you are looking to take out a mortgage, it must be up to 10% of the current value of your home, provided you have a good credit history and a stable income source. Your application is not worth entertaining if you do not have a full-time job.

Even if you earn a good amount of money with your part-time job or freelancing career, a lender may be sceptical about your payments. There is no guarantee that a lender will ever be convinced that you will pay down the mortgage on time.

Further, the risk seems to be higher because part-time jobs and freelancing do not provide a steady source of cash. It has been seen that freelancers get loads of projects in a month, and the next month they are complete without work. This may increase worries for a lender while approving loans for mortgage in the UK.

 

What can you do to increase your chances?

Getting a mortgage is not as easy as getting a payday loan. It is the largest loan, so a lender will peruse all aspects of your finances before signing off. There are some chances to qualify for a mortgage when you are a freelancer or have a part-time job, but you will need to increase your effort to get approval. Here is what you can do: 

 

• Arrange a bigger deposit size    

A deposit size can reverse the game of mortgage. Although the minimum deposit size is needed, up to 10%, you should try to make it up to 40%. It will be good if you actually manage to save higher than this. A higher deposit whittles down the risk of a lender, and hence they may approve your application.

• Show your employment history

Because you are applying for a mortgage when you are out of work, it does not mean that you will never get a full-time job. Freelancing or a part-time job is just a side gig that you are doing to stay afloat until you get a stable job. A lender would want to see your employment history.

They will use it to see your stability. If you have been switching jobs in a short period, your application will certainly come under doubt. However, suppose you have a stable employment history. In that case, you will be able to make your lender believe that you would not have any problem managing monthly payments when you get a full-time job, and in the meantime, income from freelancing can help. You can also suggest that they reduce the monthly payment size unless you get a full-time job. 

• Reduce your debt-to-income ratio

Whittle down your debt-to-income ratio as it calls your creditworthiness into question. You will surely not be able to handle mortgage payments when you have other debts too.

Try to minimize it up to 10%, and since you do not have a full-time job as of now, you should have no other debts at the time of taking out a mortgage.

 

The final word

In straight words, you cannot get a mortgage when you are out of work. However, if you have some passive income and promise that you will land a new job soon, you will likely get approved for a mortgage.

However, you should talk to consult an online mortgage advisor who has knowledge of multiple mortgages. If you directly apply for a mortgage lender, your chances are bleak, and hard inquiries will pull your credit points. Instead, contact a broker who will assess your application carefully to decide if that is possible and what ways you should follow to make your application stronger.