How Much Can I Borrow?
Chris Clare
The question here is not how much money you could borrow but how much you would be able to afford. Affordability is not just about how much money you yourself feel that that you can afford but how much money the mortgage lender feels you can afford.
Each individual is different and so how much they percieve as being able to afford will be different. This in turn creates a problem for the mortgage lender as they have to decide on each different persons ability to afford the same loan, given their different circumstances.
Obviously they can't distinguish from one person to another so they create their own criteria and apply that to each applicant. With this in mind, do not be discouraged. Shop around, for one criteria may not accept you where another one will.
As an example, lets say a mortgage lender stipulates that you can borrow 3 times your yearly salary minus other loans you have accrued. To break this down simply take a yearly income of 20,000 with other monthly loans of 300. Your yearly loan is therefore 12 times 300 or 3,600.You subtract this from your yearly salary and the figure is 16,400. You then multiply this by 3 to ascertain what the mortgage lender is willing to loan you, a figure of 49,200.
Now don't worry if your income is this and you now don't think you can get a decent mortgage because as I said all lenders are different. For example 3 times is actually probably the smallest amount that most lenders will lend nowadays. A lot of lenders routinely lend in excess of 4 times income and some even lend over 5 times income. Some lenders as in the example above deduct loans and credit cards other lenders ignore them completely. So it is important to do research to find the lender that has a lending policy that fits your circumstances perfectly.
Some lenders assess affordability totally differently and don't use multiplication methods at all. These companies use your salary and calculate the amount they will lend as a percentage. As an example, if your income is 30,000 per annum and they will allow you 40% per month of a loan, but you still have a 3600 annual car loan- 40% of 30,000 is 12,000, less the car loan leaves 8,400. Based on these lenders criteria, they estimate that you can afford to repay 8,400 per annum, or 700 per month. They wil therfore lend to you providing your new mortgage costs no more than 700 per month.
Of course peoples circumstances can change and it is impossible to pinpoint exactly how much one can afford. However lenders must set some sort of perameters so as not to apear to their regulating bodies to be lending money irresponsibly.
That said these policies are also there to protect you the borrower and if you try and work within them you should have a mortgage that you can afford both now and into the future. What a lot of people fail to realise when getting a mortgage is invariably in the future the cost of borrowing the money does fluctuate as the interest rates change and if you don't ensure you can afford the mortgage now how will you be able to afford it in the future.
So be realisitic about your affordability when applying for a mortgage. Try to factor in a few percent increase to allow for the future. A good safety tip, if your mortgage adviser hasn't already done so, is to recalculate the mortgage but factor in an increase of 3%. If the repayments still appear affordable, you should be safe to continue.
Mortgage Route gives information help and mortgage advice from fully trained http://www.mortgageroute.co.uk) mortgage brokers coupled with no obligation http://www.mortgageroute.co.uk) mortgage calculators and sourcing tools.
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