How much mortgage can I borrow? That is calculated based on 3 -5 times the value of a person’s annual income. A person’s ability to afford a loan was not given as much importance years ago to the point where lenders would not even ask for hard proof of a person’s income. Unfortunately, when the economy crashed years later, mortgage lenders had to employ stricter measures to avoid experiencing the same crisis again. What does this mean for someone who wants to take out a mortgage loan? You can expect that many aspects of your finances will be looked into with careful detail. This will also determine how much you can borrow with your annual salary.

Consider the amount of your deposit

Lenders will want to check on your ability to put down a deposit and how much the amount is against the value of the home. If you put down more on the deposit, you are likely to pay less on your monthly amortisation but a big deposit will not have an impact on the amount of the mortgage that will be extended to you.

Your Salary

A large part of the approval process will focus on this aspect. Your salary, for the most part, will determine how much the ending loan amount will be, but there are other factors as well. The mortgage lender will look into your overall finances such as your monthly living expenses. These include: your utility payments, the amount you spend on basic necessities, other loan payments, and credit card payments. Even with a big enough salary, your ability to pay your mortgage may be significantly decreased by your outgoings alone.

You should also be able to declare any other sources of income such as pensions if any. Bonuses and salary increases will also be factored into the equation as well as your savings and investments.

Credit Score

As an objective measure to determine how well you are able to manage your finances, mortgage lenders will need to look into your credit rating. Before you apply for a mortgage loan, check your credit score first. Carefully determine if there are any possible errors that need to be corrected. Sometimes, most borrowers fail to do this step and end up finding that there are negative information in their credit score that shouldn’t be in there in the first place.

Certainly, a good credit score will work to your advantage. If you don’t have good credit, you’ll need to work a little harder in managing your finances in order to raise your credit. One example of a way to raise your credit is by positively building your credit history by paying off credit card payments.

Even in the most ideal situations, a borrower with stellar affordability rating may only get up to five and a half times the amount of their annual income. This means that an ordinary individual may have to expect less. Despite this, there are still some lovely homes that can fit within your budget if you look hard enough.

Taking out a mortgage for a home is a major financial decision. Allot as much time as possible into planning and deciding how much you can afford without stretching yourself financially. When possible, look for mortgage calculators or work with consultants who can compare mortgage rates and costs for you. It can be overwhelming to work through the details of a loan all by yourself, so it may be a good idea to seek an expert’s assistance.

Think carefully before securing debt against your home, your home may be repossessed if you do not keep up repayments on your mortgage.