When you plan on buying a home one of the first things you will need to do is figure out how much you can afford. Affordability checks are a key part of any mortgage application as the lender must see that you have the means to keep up with repayments. Whether you are buying with your partner or purchasing a property alone, how much you earn matters.
Here’s all you need to know about how mortgage affordability checks work.
What is an affordability check?
When borrowing a large amount of money, it’s a risk for you as the buyer as well as the lender. To ensure that you’re in a good financial position to afford the repayment for the duration of the mortgage agreement, affordability checks are done in the very early stages of mortgage applications.
How is affordability established?
Until 2014, lenders would use a simple formula known as the mortgage to earnings ratio. In simple terms, the lender would multiply your annual income by four and consider loaning this amount to you.
Today, however, checks are completed with greater scrutiny. A multiple of your salary will still be calculated but they will also look at other factors to determine how much you can afford.
You can expect questions covering the following areas:
●Your employment status.
●Your total gross income including evidence via payslips or self-employment records.
●Your monthly outgoings i.e other repayments you have such as loans, car credit, school fees etc.
●Your credit history.
●How much you have available as your deposit.
Why are affordability checks important?
Although they can seem invasive, affordability checks are essential for making your buying process as smooth as possible and providing future security. You must buy within your means. By thoroughly assessing your financial situation, you can purchase a property that you can comfortably afford even if the mortgage rates increase.
With the right mortgage you can:
●Make your property purchase an affordable one.
●Narrow down your search and find a property that’s within your budget.
●Maintain good credit as you won’t be making payments that are too expensive for your financial situation.
AtAndrew Lee Property Lawyers, we’re on hand to help first-time buyers find a home that’s affordable. Our experienced team in Kent will provide expert guidance on how to navigate the world of mortgages so you can find the perfect property in no time at all.Get in touchwith us today for more information.
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