The size of the mortgage that you can afford will vary between mortgage providers and will depend on multiple factors such as annual income, monthly expenses and the price of the property you wish to purchase.
You will also need to be careful when you apply for mortgages as your credit score and credit history will be checked by lenders to assess your suitability for the loan in question. If for example you have applied for numerous payday loans online, you may find it harder to get a mortgage as this will be recorded on your credit file.
What size mortgage can I afford?
Generally speaking, if you have a high annual income, low level of existing debt, good credit rating, large down payment and can demonstrate a stable job, you should be able to take out more for your mortgage.
Mortgage experts advise that your total mortgage should not exceed 28% of your pre-tax monthly income.
How do mortgage lenders decide how much you can borrow?
Mortgage providers will assess a borrower’s creditworthiness before deciding whether or not they want to lend them the money. To do this, they will look at multiple factors including existing debt, annual income, monthly expenses and the amount of money that the borrower is willing to put forward as a downpayment.
Mortgage providers will determine the size of your mortgage by looking at the total annual income of the borrower. If you are applying for a loan as a couple, lenders will assess the joint annual income. Generally speaking, the higher the income, the more you will be able to borrow.
They will also assess your current financial obligations. Existing debt will be looked at relative to monthly income and monthly expenses to assess the affordability of a mortgage. This will include everything from subscriptions to memberships with a direct debit and even seemingly small obligations like if you have a course of laser hair removal which is being paid for through a credit arrangement and more besides.
If a borrower’s so called debt-to-income ratio is high (i.e. the amount of monthly debt they have is high compared to their monthly income), it is less likely that they can afford to take out additional debt. Thus, a high debt-to-income ratio signifies to lenders that you may not be able to meet your monthly mortgage repayment obligations.
How will credit score affect the size of a mortgage?
Lenders will likely look at your credit score in order to assess creditworthiness. Credit scores are based on multiple factors including borrowing behaviour, spending history and whether or not payments are paid punctually. A better credit score typically results in not only a higher likelihood of being approved for a mortgage, but also more money. Higher credit scores signify to lenders that you can reliably meet repayments and subsequently have a less risky borrowing profile. A high credit score can also result in better interest rates and lower fees.
How does deposit affect the size of a mortgage?
The amount of deposit is done on a case-to-case basis and will vary a lot between different lenders. On average, a standard deposit amount for a mortgage is 20% of the property’s value; this means that the borrower puts forward 20% of the price and the mortgage provider funds the remaining 80%.
However, there are multiple mortgage products on the market offering lower-deposit mortgages such as 10% or even 5%. Borrowers who are able to put down a higher deposit may benefit from saving more money over time.
If a borrower is putting up more of the money, this means less money for the lender and subsequently lower risk; subsequently, they can offer the borrower better loan conditions such as a shorter repayment period, fewer fees or a lower interest rate.
