What can you afford?
Wednesday, November 1st, 2006
Before you start looking at homes, it makes sense to check out what you are able to buy. As we’ve discussed earlier, it’s very rare for anyone to buy a home with all cash down - it’s very likely that you’ll be taking a mortgage.
To start with, check out your personal details with our mortgage calculator That’s a handy tool to check what you could get, on average.
Typically, lenders look at a variety of factors to finalise the mortgage terms :
- For most properties, the maximum that banks or other institutions will lend is 80% - 90% of the value of the property. Now, that’s not necessarily the same as the price of the property, but what the bank thinks it is worth.
- The second factor that you need to remember is that although the mortgage is recorded against the property, the bank really decides based on your profile. In other words, the bank is making the loan to you; it just uses the property as a security that it will get your money back. This means that your personal credit record and income record are what decide whether you get that loan, and at what rate.
- A poor credit record, with significant blackmarks, or a large ongoing debt / obligation, can reduce your loan amount and increase the cost.
- Assuming that there are no issues with your credit record, there are 2 measures that banks typically use - your mortgage payment should not exceed 28% of your monthly income, and all debt payments (mortgage + credit card + other loans + legal obligations like alimony, maintenance etc) should not exceed 36% of your income
Once you’ve done this, you know what your budget is. And if you need to wait, to get what you want. More on this tomorrow.
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November 4th, 2006 at 10:10 am
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