Once the excitement of the decision to finally find and buy your new home dies then reality hit’s home on the finance side of things. Maybe it’s you and your partners first home or you are looking to upgrade. Either way it’s an exciting time, browsing online for your dream home, talking about decorating and window shopping for your new furniture.
You can quickly become distracted and blindsided by the things to look forward to with embarking on your new property purchase adventure. However, you need to make sure beforehand that you don’t aim too high and stretch yourself financially. It’s all well and good owning your new home but if you can’t afford to live a normal life or cope with unexpected expenses then you will quickly start to feel under pressure and stressed.
Before you even start looking at properties the first thing you should do is sit down and work out what you can afford. If it’s a joint mortgage application then you both need to sit down and work out your income and outgoings. Don’t just work this out based on the last few months but as a yearly event. In winter home bills are higher due to heating etc.
Below we cover all the things to consider when working out how much you can borrow for your mortgage application. This is just a general guide and everybody’s situation is unique.
How much you earn a year is obviously one of the most important aspects of any application for a mortgage. If you are doing a joint application then obviously both sources of income will be considered and you could potentially be offered a larger amount to borrow. Always be aware though if you borrow base don 2 incomes and then 1 source of income stops then you still need to pay the repayment amount each month which could put you under enormous stress.
If your job comes with a yearly bonus then it might be best to not include this in your thought process and as a factor in the amount you borrow. Recent times especially have shown how fragile some industries can be and you might not get the same if any bonus amount year on year.
There’s no getting away from bills, they have to be paid, and they play a large part in our outgoings. House bills such as gas and water and council tax all need to be included. Always make sure you factor in the yearly average as your winter bills could be more then your summer bills so to be safe calculate your average over the year. If you plan on having children then naturally your bills will increase also, things like this have to be in your thought process when working out how much you can borrow.
A family of 4 can easily go through hundreds of pounds of food a week. Always estimate on the higher end your monthly shopping bill for food. Don’t forget to include takeaways and treats too. If you grab a coffee each day from a well known national chain then this can quickly mount of costs wise. If the children take packed lunches to school or eat out then these costings need to be included also.
Even though you own your own home now you still want to be able to go out and enjoy yourself. Trips to the cinema and meals out all add up. Always try factor in how often you go out each month and how much you spend roughly on nights out, drinks and day trips to the seaside or zoo.
One of the biggest expenses of the year, the holiday can cost thousands, especially if you are a family with children. Holidays can easily cost £3,000 plus for a family of 4. You still need your annual holiday so always factor in roughly what the cost has been for this for the past few years. This includes weekend breaks away too. Don’t suddenly say you will look at cheap breaks and last minute holidays to save money.
This one is very important. It also comes into play also as it’s related to your credit rating. When applying for a mortgage what you owe and any existing finance obligations will be considered and affect the decision you get from the mortgage lenders, or the interest rate you are given. You should have a clear understanding already on what you pay out per month so always be honest and open with yourself when calculating outgoings for existing finance.
If you own a car or as many households do nowadays multiple cars then you will already know they can quickly and unexpectedly cost you more then you had budgeted for. You might have finance on a car so this needs to be factored into any mortgage application. Car insurance and car tax add up too.
If you commute daily by bus or train then you will have a clear idea on costs per month so need to include this. One thing to remember is cars can break down so if you cut it fine with income and outgoings then a large repair bill can quickly become a problem. Always factor in having enough spare cash to deal with any unexpected situations like this.