There are several different ways you can think about mortgage affordability. Some lenders will look at your annual income and then offer a multiple of this figure, but this doesn’t take into consideration your lifestyle. Some people are more frugal with their earnings, while others may have more expensive habits.
When deciding how much money to request on your mortgage application, you should instead think about how much you can afford to pay back every month. And this shouldn’t be the upper limit. If your circumstances were to change, you should be able to survive for a few months without worrying about meeting your financial obligations.
In this article, we will look at mortgage affordability and how to work out how much you should borrow. While your circumstances might change in the future, it’s important not to borrow based on predicted future earnings as this could leave you out of pocket every month.
Calculate your monthly expenses
The first step in calculating how much mortgage you can afford is to work out your monthly expenses. This should include everything, from TV subscription services to pet expenses. From gym memberships to food shopping.
Don’t be conservative in your estimates as this will form the foundation of your calculations. You might not buy new clothes every single month, but you can’t leave this off as you will buy new clothing at some point.
Once you have your monthly expenses, you can then look at what you have leftover from your income every month. You can then use a mortgage calculator to find out the upper borrowing limit you should consider.
Get your finances in order
To secure a mortgage, you will need to save a deposit. Unless you have inherited money or received a bonus from work, you will probably need to save money every month. This is a great way to get your finances in order and start thinking about how to make accounts look as strong as possible to potential lenders.
Check your credit score
How much you can borrow is not only determined by your earnings. Lenders will also look at things like the size of your deposit and your credit score to determine how much you can borrow. A good credit score could allow you to access borrowing at better rates, which could allow you to buy a more expensive home. See https://www.moneysavingexpert.com/loans/check-free-credit-report.
Speak to lenders
While many mortgage advice articles will tell you that you can borrow between 4-6 times your annual salary, this isn’t helpful. Every application is different and lenders will look at the bigger picture, not just your annual earnings. If you have a history of bad money management, for example, lenders might not be too quick to lend to you.
And if your income is from self-employed work, this can make it even more complicated to get a straight answer. In this instance, it would be best to speak to a specialist mortgage broker to help clarify your situation. You can find mortgage brokers through sites like the following https://nichemortgageinfo.co.uk.
Speaking to a mortgage broker will help you to maximise how much you can borrow. They will help you to read between the lines and see your application as a lender will see it. If you want to maximise the amount you can borrow, a mortgage broker can help.
If a mortgage won’t be affordable, then no lender will be able to help you. The only exception would be in certain professions. Junior doctors may be granted a larger mortgage on the assumption that their earnings will increase a fixed amount over the years. However, if your earnings don’t increase as expected, you could be left with a mortgage that stretches your finances. This is a risk you would need to consider before signing on the dotted line.