Mortgage lenders are always keen to help anyone who wants to own a home. But even if you want to have a home now, perhaps you are not yet financially ready. How do you know when it’s the right time to take out a loan? Mortgage lenders can help by assessing your financial preparedness. Whether this be a first time buyer mortgage or not. Traditionally, lenders base the amount you can borrow on the ratio of your income against the loan amount. For example, a lender will allow you to borrow an amount equivalent to five times your annual income. These days, lenders are a bit more conservative when assessing the ability of a customer to afford the loan.
Assessing Your Capability to Pay
Life is not always ideal. There are stressors that can cause a person to have financial constraints and this has to be taken into consideration before a lender approves a loan. Stressors can come in the form of employment redundancy, changing career paths, and having children.
Lenders will also look at how much the borrower can afford in mortgage repayment once all other living expenses are deducted from the monthly income. Of course, you have to take into account how much rolling funds will be left after all the bills have been paid off.
A wise starting point for anyone who is interested in applying for a mortgage is to look at mortgage calculators. There are several of them available online today. Some mortgage calculators are hosted directly by the lender. This will give you an idea how much you can borrow and spend on monthly repayments.
Details on What Banks Look Into
To give you a better idea on what you need to be prepared for, here are the aspects of your finances that lenders look into:
- The main consideration here is your primary source of income. If you have a stable employment, this is ideal. Other sources of income are also taken into account. Some examples include investments or pensions as well as child-support payments. It also helps to declare if you have received regular bonuses or work incentives.
- For those who own businesses. Lenders will ask to look into your tax payments and bank accounts.
- The next thing that lenders will check are your outstanding financial obligations. Your credit card payments, auto-loan payments and other debts. The lender will also need to see how much you pay on your utility bills and other living expenses.
Certainly, the economy is not always going to perform at its peak all the time. In the same way, there may be unexpected changes that will happen in your life that can impact your ability to pay off your mortgage. The lender will also look into these factors before deciding how much you can borrow.
- The volatile housing market can affect interest rates negatively. The lender will take into account any possibility that your monthly payments will increase as a result.
- In addition to this, there can be a possibility that you may lose your job as well. With this, you must have a considerable savings account to prove to the lender that even if you don’t have the monthly income, you can still pay off your loan. This is also similar to life changes such as a career shift. This can put a stress into your financial ability and thus must be factored in when assessing your ability to pay.
- Lastly, life events such as having children also impacts a person’s finances in a big way. If you’re prepared for these instances, then you don’t have to worry.
Mortgage calculators can help, but to get a more in depth look into what you can afford and the type of mortgage loans you can be approved for, contact a mortgage loan expert directly.