Purchasing a house, particularly if you are a first-time buyer is one of the most stressful times of your life, and especially in the current challenging economic climate. Fortunately, there are a number of aids available to help you decide when to take the plunge and which lender is offering the best deal.
One of the most difficult issues you are likely to encounter is deciding precisely how much you can afford to borrow; overstretching yourself may result in you becoming unable to make the monthly repayments, which means you could be in real danger of losing your home.
Before you do anything else, go online and check out some of the mortgage calculator apps available from comparison websites and directly from individual banks and building societies. You should also check that your credit history is clean by asking for reports from the main credit rating agencies.
Mortgage and repayment calculators and analysers
Mortgage calculators and, particularly, mortgage affordability analyser apps provide a host of valuable data relating to the maximum mortgage you could obtain based on several key pieces of personal information. These include your net annual salary, monthly outgoings, the amount of deposit you have saved, the type of mortgage you require and the value of the property being considered.
By entering such detailed financial information, these apps are able to tell you with a high degree of accuracy precisely how much you can afford to borrow, the effect varying the amount of deposit will have on your monthly repayments, and how much extra you would have to pay for every percentage increase in interest rates.
How much can I borrow?
The calculation used to decide the maximum mortgage you can expect to receive is based on a number of criteria that include your nett basic salary, plus any additional income, such as commission, bonuses, overtime, maintenance/child or other financial support. Deducted from this figure are all your outgoings; for example, council tax, utility bills and credit card repayments. You should also make an estimate to cover other expenses such as holidays, socialising and clothing. When you approach a lender you will be asked to provide proof of income and expenditure in the form of payslips and bank statements. Having arrived at a figure, it is always a good idea to deduct a further 10% or so to cover for unforeseen items. Don’t forget that actually moving into your new home will incur additional expenses, not to mention ongoing maintenance and repair costs.
One of the most useful features of these apps is that they make it easy for you to compare mortgages and see the dramatic effect increasing the amount of deposit has on your monthly repayments; the interest rate lenders charge decreases for every 5% additional deposit you are able to provide. You should also consider starting off with an interest only mortgage, which significantly reduces your repayments. The downside is that you will have to find a deposit of at least 25% of the value of the property.
By feeding in various alternative scenarios to several mortgage calculator apps you will see which lender is offering the best rates.