Having your own property is a new chapter in your life. But, there are very few people who can afford to pay for it in advance. Therefore, most people decide to borrow for a mortgage, which is understandable, because real estate prices can be tremendous. If you want to find more information about the house buying process, feel free to visit https://www.thepattisallgroup.com/. When you have no money to buy a house of your dreams right away, you need to think about a mortgage size that you’ll be able to pay off. But how can you do it?
Lenders will gladly borrow you money, but first, they want to make sure that you’ll be able to pay for repayments. It’s not that easy to determine how much you can borrow in order to get a mortgage, because the sum consists of many factors. In this article, you can learn how creditors evaluate how much you can borrow.
Loan to income ratio
In the past, it was the main factor for lenders. Simply speaking, it’s a multiple of your income. Let’s say that your annual income is $100,000. In that case, you’d be able to borrow up to $500,000, because usually, the loan to income ratio is three to five times of your earnings. If you are trying to get approved but have a lower salary, a joint borrower sole proprietor mortgage is the answer. But it would be too beautiful to be real if that was the only factor. Unfortunately for you, there are other considerations that lenders take into account as well.
Affordability assessment
Each and every one of us has monthly expenses. You have to eat, pay bills, pay for car maintenance etc. Since legislation changes, that took place in 2014; lenders take all of your costs into consideration when they determine your mortgage size. So from 2014, when mortgage rules came into effect, creditors have to follow them strictly, and therefore it’s harder to get a high mortgage on good terms.
Also, there is one essential thing that lenders have to take into consideration. It’s possible that interest rate rises, or you’ll have some unexpected lifestyle changes. Redundancy, pregnancy, career change, anything can happen in your life. Unfortunately, these changes significantly affect your financial situation, and you might not be able to fulfil your financial obligations.
Be ready for mortgage interview
In the past, lenders would ask about your income and bills only. But now, these interviews got much harder. So on top of the salary amount, and bills cost, you can also be asked about the debts that you have or how often you eat out. Besides, you might be asked about other outgoings, such as gym membership or any other physical activities costs, your insurance costs, car maintenance costs, amount of money that you spend on entertainment, your children school fees and healthcare etc.
Don’t worry, though; it’s not supposed to make you feel bad or humiliate you. You might’ve heard stories about lenders who ask to stop eating steak, but it’s just scaremongering. Creditors are just trying to figure out what your incomes and estimated outgoings are so that they know if you’ll be able to pay off repayments. Most of them will look at your spending habits in the last three months, before your application.
How to estimate the maximum loan figure on your own
If you’d like to count how big a mortgage you can get, feel free to use one of many online calculators. They’ll give you a rough estimation based on your income. However, if you want to know the exact size of the mortgage, the only way to do so is to talk to your lender.
Deposit amount matters
It’d be best for you to have some savings already. Once you know your potential mortgage size, think about how much money you can deposit. The more money you can provide as a deposit, the better conditions of your mortgage are. The absolute minimum that you need is 5%, but you should try to get much more. When you’re able to cover 25%, your rate will be much better, and if you have around 40%, you’ll get top rates. So the more you saved up, the better for you.
Mortgage size depends on many factors, for example, your salary, expenses and deposit amount. Don’t listen to ridiculous mortgage rumors, as they are not true, and the only thing they can do is make you discouraged. If you need an approximate mortgage amount size, you should use online mortgage calculators.
