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What you can afford - How to calculate what you can borrow in relation to your earnings? Use a Mortgage Calculator.

Before you start house-hunting, you are best advised to work out how much you are able to borrow. Estate Agents prefer to work with you as a buyer if you know exactly what you can afford, and better still, if you have a mortgage offer in principle from a lender. When you go to a mortgage lender you will be asked for a certain amount of information, from which they can work out what they can afford to lend you. In general, though, they would like you to find a property first. So, to avoid a chicken and an egg situation, our advice is for you to sit down and work out what you can afford now, so when you travel round the location where you want to live, you can look at properties most likely to be in your price range.

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Firstly you need to understand that how much you can afford to borrow and how much someone is actually prepared to lend you, they are likely to be two different things.

If you are a single applicant, you will be able to borrow about 3 ½ times your annual income. Should you be joint applicants you can borrow either 3 ½ times the main annual income in addition to one times the second income OR you can borrow 2 ½ times the joint annual incomes. Should you be self-employed you are likely to have to provide three years accounts from which the average of your net profit is assessed. Different lenders have different rules so it's always worth asking them.

However, when it comes to working out how much you can afford to borrow, there is a checklist you can use to work out how much you can put towards a mortgage each month. Should you cut back on some of your expenses, this amount can grow.

First, write down your monthly income. Your net monthly salary, then your partner's net monthly salary, then any overtime you regularly do. This will give you your total monthly income.

Then your monthly costs. Not all of these will apply to you, but you will need to add up:
Electricity, children's pocket money, telephone, water rates, gas, credit card bills, standing orders, HP payments, council tax, TV licence/rental, insurance, food/drink, maintenance, non-food groceries (like washing powder), savings plans, health care, cigarette, domestic appliances, dentistry, animals, garden, hobbies, entertainments, holiday expenses, travel expenses, car expenses, presents, newspapers, magazines, clothing, hi-fi/video costs.

This will give you your total monthly costs, which you subtract from your total monthly income and will give you your MAXIMUM monthly amount that you can afford for mortgage payments. Ideally, you should give yourself leeway, in case you incur any sudden costs you didn't plan for.

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2009

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