Using your bonus toward your mortgage

Whether you can use your bonus or other forms of income towards your mortgage is a popular question we are asked frequently.

As well as other forms of alternative income types, such as commission, trust funds, and dividends, bonuses also have the potential to count towards your mortgage and boost your borrowing power as they increase your overall income. This can be useful when your income doesn’t stretch quite far enough when purchasing or refinancing a property.

However, the amount of additional borrowing will depend on the type of bonus and finding the right lender that will accept this form of income can be complex. Lenders may vary in how they consider bonus income when assessing your eligibility for a mortgage.

In this article we explain how much you could boost your borrowing for your mortgage using a bonus, the factors which impact how lenders consider your bonus, using your bonus to overpay your mortgage, and selecting the right lender to optimise your borrowing capacity.


How much additional borrowing could I get with my mortgage through my bonus or commission?

Mortgage products take bonus pay into account in varying degrees. Generally, 50% of the average bonus pay received over the past two years can be added to borrowers’ salaried income when making affordability calculations. However, some bonus-friendly products will accept 100% of the average over the past two years. This can make a significant difference to the amount buyers can borrow, particularly when they receive higher bonus payments.

Mortgage lenders can be reluctant to include bonus payments in affordability calculations as generally they’re not guaranteed, and the amount can vary significantly from year to year. However, for those in high-paid professions where bonus pay is not just common but expected, it can form a significant chunk of their finances and make a real difference in terms of the type of property they can afford to purchase.


How lenders view bonus income when determining mortgage eligibility

Each lender will have their own rules on whether they can accept bonuses as part of your income. In general, guaranteed bonuses are more likely to be looked at more favourably than performance-based bonuses. Additionally, the length of time you have been receiving the bonus income will impact how a lender considers your application.

Whether you receive regular or irregular bonuses, speaking with an independent mortgage broker can help unlock a whole new level of potential homes. By not seeking the right help, you could be limiting your borrowing power and restricting your property search or refinancing options. A broker can identify the most suitable products with bonus-friendly criteria as well as competitive rates. This could be the difference of that additional finance gap you need to meet your financing requirements.

Lending criteria for alternative income types

When determining mortgage eligibility, lenders may have specific criteria for evaluating alternative income sources like bonuses or commissions. These criteria can differ from one lender to another.

Borrowers may find their application is declined by not selecting the right lender that can assess their income in the right way or if the mortgage application has not presented their income in the correct format which the lender will accept. This is where a specialised mortgage broker can prove invaluable to help navigate these issues.


Can I use my bonus to overpay my mortgage?

Many mortgages will let you overpay up to 10% of the balance each year however, this is not the case with every lender. It is important to understand the terms and conditions of your mortgage before committing to any form of long-term financial loan. Using your bonus to pay down your mortgage faster can be an effective way to minimise the interest paid over the term of the mortgage.


Proving your bonus and commission income on your application

Preparing all the necessary documentation, including your bonus or alternative sources of income, to enhance your mortgage borrowing capacity can be quite a challenge without the right help. Receiving expert mortgage advice could be the difference between affording the property you would like to purchase or refinance, or not.

At Private Finance, we are specialists when it comes to using alternative forms of income to boost your borrowing power, such as bonuses, commissions, and dividends. We identify the right lender to meet your financial needs and help present your mortgage application to the lender with the highest chance of acceptance, as well as guide you through the whole journey.

Book your free 30 minute initial mortgage consultation to receive tailored advice to your situation.

Or call us on 0800 980 8777.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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