Before becoming a home owner, you need to make sure that you are able to afford it. After tax, you need to know how much of your monthly income you have left, and how much of that is then spent on food, clothes, bills, and other necessities.
You also need to take into account any other loans you have, and how much they are costing each month.
Plus any repeat outgoings, like bills or payments to your phone contract, internet and/or TV provider.
You need to be very honest with yourself, and know how much you will be able to repay. If you go for a mortgage which demands repayments above what you can afford each month, it could have serious ramifications in the future, even leading to the repossession of your home.
Income and mortgages
How much income do you, and anyone else on the mortgage, have collectively each month?
How much do you collectively have outgoing in terms of loans, hires, bills, e.t.c?
You need to see what you have left over, and then you will be able to see how large a mortgage you will be able to afford.
As a general guide, the percentage of your after-tax-income that a mortgage repayment makes up per month can be seen as a judge of risk.
- Under 40% of your income is generally seen as affordable
- Between 40 and 50% of your income is putting yourself at risk of overstretching
- Between 50 and 60%of your income is usually overstretching
- Over 60% of your income is putting yourself at high risk of debt
Of course, each situation is different, and with the differing deals and add-ons that mortgages can come with, this scale may not be applicable to everyone.
Remember that you will need to have money left over to live on, and that your social and leisure lives may be affected by how much you will have to pay out each month.
Tips for affording a mortgage
The more disposable income you have per month increases the amount that you can borrow on a mortgage, so increasing this will help to maximise the mortgage you can get.
Paying off any outstanding debts, such as those for credit cards or other loans before applying for a mortgage, will go a long way to freeing up income to spend on your home, and a lender will carry out a credit check on you before lending.
Create a budget and stick to it, cutting out any unnecessary spending. Shop around for cheaper deals on things like your broadband and your TV provider.
Stay out of your overdraft, and don’t exceed the overdraft limit.
Check your credit report ahead of time, especially if there is a reason that you think there will be an issue. If there is, make sure you solve this, before going to the mortgage application. Even if you are successful in your application, fixing any financial issues and paying any outstanding debts before acquiring a mortgage will be more beneficial than trying to do so while also paying a mortgage.
Furthermore, it is important to have some spare cash that can be used to spend on unexpected costs which you may not foresee.
Have a look at the cost check page to get some ideas as to what you may have to pay.