How to Work Out What Mortgage You Can Afford

5af814e516324d1393bafb1f0d719a10Although mortgages are designed to help you with the cost of purchasing a property, they are still a huge outgoing in themselves. Many people become so wrapped up in the opportunities they provide that they forget this, let their heart rule their head, and find themselves out of their depth when it comes to making repayments.

This is a mistake that can have severe consequences, yet it’s also one that is easy to avoid. The best way to guard against overestimating your financial capabilities is to sit down and work out how much you can afford before officially approaching any lenders. Here are a few steps to help you calculate a rough estimate…

How Much Money Do You Have Left at the End of the Month?

One of the ways that lenders assess your ability to repay a mortgage is by looking at your income, and then subtracting any ‘committed’ monthly expenses that you have, such as credit cards, household bills and other debts. Once they have a final figure they use this to judge whether you earn enough each month to afford their repayments.

So why do this yourself when someone else will do it for you further down the line? The answer is simple. Reaching a ballpark figure now means that you’ll have a clearer idea of how much you can afford to borrow, making it less likely that you’ll be rejected when it comes to making an application.

There are a number of ways that you can work this out. One method is simply to add together any money coming into your home, and then minus from this figure any money that you spend. However, it’s usually better to turn to one of the many online mortgage resources that are available, as these will save you from overlooking anything important.

Does This Figure Leave Enough Money for Costs Beyond the Mortgage? 

One thing that people often forget is that even the most carefully planned budget can go awry. Payments can arise unexpectedly, and if your mortgage costs leave nothing left over at the end of the month, you may find yourself struggling. Be sure to factor into your plans a percentage left over for other household or emergency expenses.

Remember, too, that it is not only unexpected bills that could arise, but surprise decreases in income. Illness or redundancy can mean that you make less than you’d estimated, so it’s important to have enough money left over to start building some savings to use in the event of an emergency.

As a rough guide, most financial experts agree that your mortgage should not total more than 43 per cent of your household income, as this leaves enough spare to cover any surprise charges that you may have to pay.

How much can you afford to borrow?

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