Affordability

Before getting a property you need to ask yourself the following question – Can I afford to pay for my new property?

Before considering your dream home you need to make sure that you can afford the property and run it.  Many people get to the stage of making an offer on a property before realising that they cannot afford it.

On this page you have the opportunity to assess your own finances before entering into a mortgage agreement.  Here the process of selecting a loan and other financial implications of owning a property

You need to be Conversant with your Assets and Liabilities

It is recommended that you keep at least 6 – 12 months emergency cash in place to cover your living expenses.

Assets

If you already own a property – VALUE of your property

For those that already own a home – calculate the EQUITY you will be able to transfer to your new home.  This is the difference between the current amount owed to the mortgage company (if applicable) including any expenses associated with such a transaction and the amount the property is likely to sell for on the market.

The amount of savings you have in a Bank or Building Society

Here lies the opportunity to cash in on your savings – typically to pay for a deposit hopefully a large deposit.  A large deposit puts you in a better position by increasing the price of the property that you can afford and giving you a wider range of mortgage options.

Shares and other investments

Though this form of asset is not considered in your mortgage calculations – it comes in handy.  Here pending on the amount you have put together, it will certainly make a contribution to your deposit.

Tips:

It has been said that in the multitude of numbers there is safety – seek advice from a proven adversary

There is usually a time frame in the conversion of such investments or savings into cash – find out what it is so that you can plan accordingly.

LIABILITIES

Mortgage Outstanding

Pending on the type of mortgage you have taken based on the terms and conditions of the loan will determine the amount outstanding to the bank.  Typically you can call or write to your bank or building society and request a redemption figure – which they will happily oblige.

 

Existing Loans

How much do you currently owe and it is best to go down to the last penny including that owed to family and friends.  Institutional debts include the following; car loans | credit cards

Remember the magnitude of such debt will determine how much you can afford and whether you can afford the payments on a mortgage.

Cost of Moving

Once you have acquired the property the cost of moving cannot be ignored.  You will need to include the cost of moving into your calculations.

ASSETS & LIABILITIES

ASSETS LIABILITIES
Value of your Home Mortgage outstanding
Savings in bank or building society that can be cashed Debts, such as loans
Shares or other investments that can be cashed Cost of administration an moving

 

An Example of Assets & Liabilities

Income

Income can be defined as the money you earn either as an employee or from  your business.  Gross income represents your earnings before tax and other deductions such as National Insurance.  Your lending body is likely to consider half of your commission or bonuses.  It is like that as an employee your three most recent payslips will be requested and/or your P60 that is issued each year in April – providing the details of our pay and how much tax has been taken.

For the self- employed or business person you will require usually 3 years accounts and/or an accountant’s reference.

Expenses

This can be technically defined as your living expenses ranging from your food clothing to your home and vehicle insurance – pending on your lifestyle.  The best approach is to consider a monthly account of your expenditure taking into consideration every single purchase.  The best way to tackle this is to collect a receipt for every penny spent.

Then you can make list of your monthly expenses allowing for an assessment of monthly expenses.

Please follow the following link for an example of your expected monthly expenditure

 

The Cost of Buying a Home

There are many costs associated with the cost of transacting the sale of a property.  Thus it follows you will have to set aside money for the many costs associated with the selling buying and moving .  When planning the following has to be taken into consideration to include legal costs, mortgage fees, removals to mention a few and the deposit for the purchase of your new property.

The Cost of Buying a New Property

Council Tax Bill; Commuting Cost; Utility Bills; etc

Please visit the following table to assess the total expected cost of moving

The Deposit

This represents the cash down payment you make on your new home.  It follows that the larger the deposit the better the interest rate you are able to command in negotiating your mortgage – not to mention the possibility of lowering the charges associated with this loan acquisition.  Such charges can run into several thousand pounds pending on the price of the property amongst many other factors.

100% mortgages do exist but the terms may not always be favourable to the candidate – if you are considering such you must be vigilant and seek wise counsel on the matter.

YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR LOAN SECURED ON IT. www.myfirsthomeblog.com TAKES NO RESPONSIBILTY NOR PROVIDES ADVICE ON THE ACQUISITION OF A MORTGAGE AS THIS IS PROVIDED BY OUR PANEL OF PROFESSIONALS WITH WHOM YOU DEAL WITH DIRECTLY AND THEY ARE AUTHORISED BY THE FINANCIAL SERVICES AUTHORITY. If you have any doubts you should contact an independent financial advisor.

Credit Worthiness

This is one aspect of your life that lenders look into when you look to get a mortgage.  There are a few articles that cover this:

Creditworthiness has to do with the ability of a borrower to pay current debt in a timely manner. Within the context of the ability, several basic factors come into play. An evaluation of the creditworthiness of a borrower involves identifying the presence of resources that may be used to repay debts, the willingness of the debtor to use those resources for repaying debt, and a history of choosing to repay debt obligations in a timely manner.

When creditors choose to extend credit to an individual or business, that extension of creditis based on the understanding that the borrower will have resources that can be used to repay the debt. The resources are normally thought of in terms of some type of cash flow. The cash flow may be from income earned from a job, or income that is received in exchange for goods and services provided to clients. Even a cash flow that results from regularly scheduled disbursements from a trust or interest income payments may be considered a verifiable type of cash flow. (Ref: wisegeek.com)

 

Lenders use different methods of assessing, so you might be rejected by one and accepted by the other.  If for any reason you find that you are rejected by the mainstream lenders – there Is the choice of specialist lenders where you are considered a higher risk.  As a result, this will tend to increase the cost of getting a loan.

 

However, if you feel the records provided on your credit records are inaccurate then you have the right to write to your credit reference agencies – In fact it is advocated that before approaching a lender it is best to carry out a check on your credit records.  Please find outlined below the agencies involved in keeping credit records:

 

Equifax

Equifax Credit File Advice Centre

P.O. Box 1140

Bradford

BD1 5US

Experian

Postal Address:

CreditExpert

PO BOX 7710

Nottingham

NG80 7WE.

 

Callcredit

Callcredit Information Group Limited

Registered Office:

One Park Lane,

Leeds,

West Yorkshire,

LS3 1EP

 

The will send you a copy of your credit file by post for £2

 

You will also find online alternatives for a Free credit report

 

ALL INSTITUTIONAL LENDERS WILL ASSES YOUR CREDIT WORTHINESS

 

Self – employed

The self-employed will need to provide evidence of income to the lending bodies.  You will need to provide evidence of income for the last two or three years  pending on the lending institution.  This is the average profit that you pay tax for the period of your income.  The longer you are self- employed individual the better your chances.  In the event that you do not have least 2 years – experience this reduces the number of mortgages that have access to.  Alternatively there are specialised produced such as the self – certification mortgage – though in many cases this may prove to be more expensive compared to the standard mortgages.

Temporary Jobs or Contract business

For instance as a contract worker you will need a letter from your company or employer confirming that they will continue to give you work.  In addition, you may need to provide confirmation that the amount will be the same ad not decrease.

Are you a declared bankrupt?

Such individual will have access to specialised mortgages, though this will more expensive than the standard mortgages in the market.  It is usually best to contact a financial adviser regulated by the financial services authority.

We shall be discussing mortgages in more detail in another section.

So how much can you borrow?

As already discussed the amount you can borrow is a function of a number of factors to include the amount of deposit you have saved, your credit rating, the type of property selected , the type of mortgage negotiated and selected.   The reality is that most applicants do not have an ideal situation owing to life’s circumstances.

Case Study: Annual Income versus expenditure

In preparation, it is important that you keep a regular check on your financial circumstances in terms of incomings and outgoings.  The following table serves a guideline to handling your finances based on income and expenditure

The reality is that for those looking to borrow the lenders only favour those with a healthy financial statement.

 

How much can you afford?

This is dependent on your personal circumstances and this will be highlighted by the professionals ad experts you liaise with.  The most important thing you must consider is that you are able to afford the purchase price, payments and maintenance of the property.  Always create a safety net in case of any eventuality – so that when things do go wrong as they often do, you are protected.

So what can go wrong?

A number of factors contribute which may lead to a change in your personal circumstances

Increase in interest rates

This often has a dramatic impact on the monthly payments – when you can always go for a fixed rate so at least you are certain what the mortgage will be in this period.  In so doing, the changes in external circumstances cannot impact on your monthly payments.

Valuation lower than price

It is to your advantage if the price of the property is undervalued.  In the event that that it is overvalued – this can have a negative impact on your cash flow if you decide that you want to sell the property.  A lot of property owners have been caught out in the negative equity trap.

Job loss or loss of income

This has to be seriously taken into consideration.  It is often best to plan for any eventuality which includes the potential loss of income.  It would be wise to set a monthly saving aside if you lose your job or suffer an injury – it is said at least 6 months in savings is a good start.  You can also consider insurance policies, but please ensure you carry out the due diligence.