If you are looking to buy a home then you will need to think about how you are going to afford it. Most people will look to getting a home loan to pay for it as they will be unlikely to have that much money available to pay out. There are many home loans and many lenders offering them and it is important to make sure that you have a full understanding of what is available so that you make the right decisions. One of the decisions you will need to make is how much to borrow and this can be one of the most important ones.
The cost of the mortgage
It is really important to look at how much you will be paying in total for your home loan. You should be able to find out how much you will repay including the charges and interest. This will allow you to see how much your home will actually cost you. It is easy to look at the cost in terms of the sale price of the property but you also need to allow for the cost of the loan on top. As you will be borrowing for such a long time then the cost will be very high. It will depend on the interest rate that you pay and so if you can find one that is low then that will be really helpful.
It is worth looking at the charges if you miss a repayment as well. You may feel that you will never do this, but if you are comparing different lenders then it is a good idea to just take a look at them and compare. Then if two lenders are very similar this might be a factor that you will take into consideration.
It is also important to think about the repayments for the mortgage. You need to find out from the lender how much these will be and for how long you will be paying them. Then you will be able to calculate if you can afford them. This is crucial as you will be paying for a long time and you want to make it as easy as possible for yourself. Consider how much you can afford now but also think about the future and whether there are likely to be any events that take place that may make it difficult to afford the repayments. It can be tricky to imagine this but it is worth trying as you want to make sure that you do not miss repayments as this will be expensive and if you miss a lot you could even end up having the property repossessed by the lender.
How much to borrow
Deciding how much to borrow is difficult. If you have seen a property that you really like then you will want to borrow enough to afford it. However, it is so important to be realistic. If it is not too late it is better to decide how much to borrow and then look for properties that are within your price range. This will stop you wanting places that are too expensive.
Obviously, the amount that you can borrow will be determined by how much you earn as well. The lender will decide how much they are prepared to let you have. If you have a lump sum to put down as well this will really help as you will be able to get a more expensive property without having a bigger home loan. So, planning in advance and saving as much as you can will really help you there.
Many people will borrow as much as they can so that they can get the best possible property and assume that their income will go up over the years and they will find the repayments easier. However, it is worth being cautious about doing this. Firstly, if you lose your job in the short term then you will really struggle to cope financially and if your mortgage payments were a bit lower this would help. If you have a family in the future then this will mean that your expenses go up a lot and again it could make finding enough money to cover the mortgage difficult. If your do not have a fixed rate then you could find the interest on the mortgage goes up and this could make it more difficult to manage as well.
Although it is hard to predict what might happen it is worth considering different scenarios and thinking about how you might manage to cope in them. You may be able to build up some savings to help you, you may feel your job prospects are good and your pay will improve or you may be looking for a partner before you have children so there will be two incomes available. However, making sure you manage those repayments should always be a priority.