If you’ve made the decision to start house hunting, one of the first things you’ll need to do is determine how much of a mortgage you can afford. It might seem like it’s hard to work out the amount you can borrow, and it’s true that it might vary from lender to lender, but in general they all take the same factors into consideration when determining how much they’ll lend.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Here’s what you need to have in order before you begin:
Income
Previously, your income was a major factor in determining how much lenders would allow you to borrow. While it’s still important in their decision, it’s not the only aspect taken into consideration.
Higher earnings will still allow you to borrow more but after the coronavirus outbreak, many mortgage lenders imposed stricter rules on how much you can borrow. Now, you’ll need to prove to mortgage providers where your income comes from and find one that will accept income that isn’t strictly salary-based.
Credit score
Your credit score indicates your financial history and highlights any issues you may have had over the last six years. A less than stellar credit score will affect whether or not a mortgage provider will lend to you, how much you can borrow, and the interest rate available to you.
Deposit
If your deposit is sizeable – especially in relation to the property value you wish to buy, then you’ll be more attractive to lenders as it lowers the risk of lending to you.
Expenses
With the introduction of affordability tests, not only will you need to prove you have the income to support your monthly payments, but you’ll also need to present all other current expenses – essential and otherwise.
You need to know how much you spend on:
- Bills,
- Loans,
- Other debt you have,
- Everyday living costs, and
- Other non-essentials like entertainment, holidays, etc.
If your outgoing expenses are out of control, do your best to rein them in well before beginning your house hunt.
Changes in the future
A mortgage is meant to be a long-term contract so providers take into consideration if you can afford your repayments in the future.
Your situation might change and expenses might increase according to life circumstances.
Alternatively, interest rates might also shift and affect your ability to pay (if you don’t have a fixed-rate mortgage, that is) which might make securing a mortgage now difficult if you don’t have the evidence to support the fact that you can afford repayments no matter how high rates climb.
Professional help
It can be difficult and time-consuming finding a provider that will lend you the money you need. No matter how far you are in the process, we can help you navigate through every stage of the mortgage application process and help you find the best deal available. For more information about mortgages or to get the ball rolling on purchasing a property, contact Dental and Medical Financial Services now.
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