Our secured loan application checklist will give you a step-by-step guide to homeowner loansPublished: October 12, 2018
You’ve probably put a lot of time and money into your property to keep it in a good state of repair, after all, homes are generally an appreciating asset. But as well as being a sound ‘home’ for your money, if you need a large loan, your property could provide the key to opening up a large line of credit (from a few thousand pounds to £5 million) with a secured loan.
But, before you start applying for a secured loan (sometimes known as a second mortgage, 2nd charge or homeowner loan), follow this loan checklist to ensure your application goes as smoothly as possible. Or you could just apply for a secured loan through Loan.co.uk and we’ll take care of everything for you.
7 steps to applying for your secured loan
1. Check your credit report and credit score
Before you start applying for a secured loan, check your credit score and that your credit report is accurate. There are three main Credit Reference Agencies (CRAs) in the UK; Equifax, Experian and TransUnion (formerly called Callcredit). Contact them to see your credit report and check that everything within it is accurate. It’s important that you have any inaccuracies corrected because having incorrect information in your report could lower your chances of having a secured loan approved.
Of course, if you apply for a secured loan through Loan.co.uk we’ll automatically check your credit score and credit history for you.
2. Work out how much equity you have in your property
Because a secured loan uses the equity you have in your property as collateral, you’ll need to see how much equity you have to be able to see how much you could borrow:
2a. Get a property valuation
Ask an independent valuator to give you an accurate valuation or perhaps use an online home valuation service such as Zoopla. Lenders are cautious about valuations from estate agents in general as they may sometimes over value property. Again, when you apply for a secured loan through Loan.co.uk we can take care of all this for you.
2b. See how much you owe on your mortgage
Once you know your mortgage balance (check online, via app or just call the mortgage lender). If you already have a loans or debts secured on your property, find out how much is outstanding. Add the total amount owed on your mortgage plus any existing homeowner loans, then subtract this figure from the value of your property.
2c. Do some quick maths
- Let’s say you discover that your property’s worth £100,000
- You have a mortgage balance of £75,000 left to pay (£75,000 LTV)
- You have £25,000 equity available in your property
2d. Check the loan to value (LTV)
When you look at secured loans, they will show you an LTV. This shows you the percentage you could borrow up to. So, in our example, with a 75% LTV you could borrow £25,000.
If you already have an existing second mortgage, the lender will need to pay that off first. If you have £25,000 equity in your property and a homeowner loan of £10,000, you will only be offered a loan of up to £15,000.
3. Compare the secured loans on offer
Check the secured loans available so that you get the best deal and you don’t pay more than you have to. Sites such as Loan.co.uk are a great place to compare secured loans and the options open to you.
4. See how much the secured loan will cost you and work out whether you can afford it
Lenders will run an affordability to test to see if you’ll be able to comfortably manage the repayments on your secured loan. If they feel that you can’t afford to borrow the amount you request, they’ll decline your application for a secured loan.
By comparing loans and the repayments involved you’ll quickly be able to see how much you can sensibly borrow. A mortgage broker such as Loan.co.uk will be able to help you with this, but make certain that you’ll be able to make all the repayments and on time, because if you don’t, it may hurt your credit rating or put your property at risk.
5. Think carefully about the amount you borrow
Work out exactly what you need to borrow. Don’t be tempted to ask for more than you really need, so that there is extra money for a treat such as a holiday. Because remember, a secured loan is secured against your home.
6. Consider if you may be able to repay the secured loan early
It’s worth noting that secured loans often come with early repayment penalties. So, for example, if you had a windfall and that made it possible to repay the loan early, there may be a penalty to pay. A reputable loan broker such as Loan.co.uk will alert you to any penalties before you apply for a secured loan. And if you do have a windfall, they could help you work out if you’d save money by paying the loan early along with the penalty, or if it will be best for you to pay off other forms of debt that you may have.
7. Send in all the documents you’re asked for and fill out all loan application documents completely
It’s important that you provide all the information and documents you’re asked and as quickly as you can. If you don’t, the application process for your secured loan will slow down considerably as the lender or loan broker are forced to spend time chasing-up whatever’s needed.
Loan.co.uk will prepare as much documentation as possible for you to make things as easy as possible for you, but we will need you to sign and send certain documents.
Now that you have a handy application checklist and know how the application process works, you should find it simple to secure your homeowner loan.