Q. I’m buying a house but how do I know how much I can borrow?
A. The main point here is ‘affordability’. How much can you comfortably afford to borrow?
Banks consider a number of factors to help them determine how much you can afford to borrow.
Income: Your salary or other sources of regular income give an indication of what you can afford to repay each month. The more you earn, the more you can potentially borrow.
Credit score: A higher credit score shows that you’re more reliable at managing debt, meaning you’re more likely to get a mortgage.
Deposit: This is the amount of money you have saved up to put towards the cost of the house. The larger your deposit, the less you’ll need to borrow from the bank.
Loan-to-Value (LTV): This the amount of money you need to borrow from the bank vs the size of your deposit. If you have a decent deposit then a bank is more likely to lend you money.
Debt-to-Income (DTI) ratio: This measures how much of your monthly income goes towards paying off debts. Banks prefer borrowers who don’t have large outstanding debts to pay.
Employment history: A stable job history shows you have a reliable income, which makes you a less risky borrower.
Property value: The bank will consider the value of the property you want to buy. They’ll typically lend you a percentage of the property’s value.
Interest rates: The bank will offer you an interest rate on the mortgage, which affects your monthly repayments. Lower interest rates make it easier to borrow more money, while higher rates % can limit your borrowing capacity.
Mortgage term: This is the number of years you have to repay the mortgage. A longer mortgage term can lower your monthly repayments, making it easier to borrow more.
Other commitments: The bank will also look at your existing financial responsibilities, like car loans or student loans. These can affect how much money you have available for mortgage repayments and influence how much the bank is willing to lend you.
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