How Large A Loan Can You Afford?
Monday, November 13, 2006
The first step to finding the right home for your needs is to
work out how much money you can afford to spend on the
property. Although you want to get a good property, you also
want it to be affordable, and knowing what you can spend will
help you to find the right home at the right price. If you are
unsure about how much you can afford to spend on your mortgage
loan, then here is some advice to help you work it out.
How much do you earn?
Your mortgage loan will be secured against your new property,
but to work out how much you can borrow the lender will look at
your earnings. They do not just want to know how much money you
have now, but what you are likely to earn over the next 20 or
30 years. Mortgage loans last a long time, and so the lender
has to see that you will be able to pay off the loan both now
and in ten years' time. The more you earn and the more stable
your job, the better the chances of you getting a larger
mortgage.
Credit history
Another important factor that determines how much you can
afford is your credit history. The lender will do a credit
check to make sure that you are a responsible borrower, and
that you don't have any past financial problems. Before
applying for a mortgage loan, you should check that your credit
report is in order and that there are no mistakes. A good credit
history will allow you to borrow more.
Timescale
How much you can afford to borrow will allow depend on how long
you want the mortgage loan term to be. If you want a long
mortgage term of 25 years, then your monthly payments will be
much lower, but you will pay back a lot more in interest.
However, getting a mortgage loan term of 15 years will mean
higher payments, but less overall costs from interest. Also, if
you are only planning to stay in a property for a few years, it
may not be worth getting a mortgage. Changing properties will
involve many costs, and so it might be more cost effective to
rent until you can afford a property that you will stay in for
longer.
Be honest with yourself
As well as the lender deciding how much you can afford, you
need to be honest with yourself about your financial
capabilities. Just because a lender will loan you a certain
amount of money does not mean you can really afford it. If you
cut back on everything else then you might be able to afford
the mortgage. However, if your lifestyle is more extravagant,
then getting a large mortgage may not be a good idea. Try and
be conservative, and borrow an amount that you can afford
easily. This will make the mortgage loan less risky and allow
you to make payments even during tough times. However much you
decide to borrow make sure you can afford the payments, because
you never want to be in a situation where your house is taken
away from you because you cannot pay. Sacrifice that extra
bedroom for financial security and you will benefit in the
long-term.
About The Author: Peter Kenny is a writer for The Thrifty Scot,
please visit us at http://www.loanwize.co.uk and
http://www.thriftyscot.co.uk/Loans/
posted by Dennis Cheesman @ 5:52 AM,
