When it comes to mortgages, not many of us are fully aware of what we are getting into. It’s a sad fact, but it’s true – how much homework do people put in when they make this major financial decision? The fact is that getting a mortgage is a big step, and it can very well affect your future for years to come. That’s why it’s crucial to know exactly what a mortgage entails and know as much as you can about how it works. Here are some fast facts on how much you can realistically borrow when applying for a mortgage. Knowing these facts will help you determine your deposit, your expected monthly payments, and more.
What you should know
The first fact you should know is that lenders will lend you money based on numbers and figures. They are not there to ‘help you out,’ as attractive as that may be to believe. Lenders need to make money as well, so when considering your mortgage application, they will factor in such details as your present (and future) income, your expenses, both major and minor; your credit rating and history, and so on.
Based on these factors, lenders will be able to determine how much they will realistically be able to let you borrow, which is normally about three to five times of your earnings or income.
In applying for a mortgage, there are many terms you may need to become familiar with. One of the most important terms is the LTV, or loan to value. Basically, this is the amount you will be borrowing from the lender in regards to the total cost of the piece of property you are eyeing. The LTV will be a percentage of the value of the property. For instance, if the property you are purchasing is worth £200000 and you are borrowing a total of £180000, your loan to value percentage will be 90%.
Most mortgage deals will allow you to borrow a maximum of about 75 percent to 90 percent, but it goes without saying that if your LTV is lower, your mortgage rate will be lower as well.
The importance of the deposit
If you can, try to come up with a higher deposit amount, as a mortgage broker Taunton from Open Vision Finance will tell you. Not only will paying a higher deposit result in a better and cheaper mortgage deal – it may also free you from other charges, such as the higher-lending charge, or HLC. This is because if you pay a deposit of only 25 percent (or less), you may be charged with the HLC. The HLC can go up to hundreds (or as much as) thousands. You should think about other charges as well, and this includes solicitors’ fees, survey fees, and more.
Image courtesy of Danilo Rizzuti/FreeDigitalPhotos.net