Mortgages are the most common way of buying a property. A mortgage is simply a loan given by a bank or lender, specifically for the purpose of buying property. The lender will work out how much you can afford when buying a home by using certain criteria. These can include your salary, the value of the property, the size of your deposit etc.
The loan is secured via a charge against the title of the property. This means that if you fall behind on the payments you agree to pay the lender then they could take the house back from you in order to recuperate their funds.
How Much Can I Afford When Buying A Home?
The amount the mortgage lender gives you depends on the value of the property and the ability of you to pay it back. Most lenders will offer anything between 70% to 90% of the property value.
When considering a mortgage it’s important to consider how much of a deposit you will need, as well as how much you can afford every month. You need to make sure that you’re able to make the payments every month otherwise you can fall into arrears. If you miss multiple mortgage payments then the lender could start proceedings to repossess your house.
Should I Take a Mortgage?
There are several costs you have to keep in mind before taking out a mortgage. Therefore, before you commit, it’s important to know how much you will be required to pay back. Costs can include:
Mortgage application fees. The amount you pay varies between lenders. Some lenders require you to pay upfront while others add it to your mortgage advance.
Legals. These are some of the initial costs that you’ll have to pay when you buy your property. Your solicitor will act on your behalf during the purchase and make sure there are no issues with the title. We can recommend some great local solicitors if you need help.
Mortgage rate. The mortgage interest rate you secure will be a large factor in determining your monthly payments. Rates vary depending on the lender, the repayment period and the value of the property. We can recommend local mortgage brokers who will get the best deals.
Repayment method and Duration. You can opt for an interest-only mortgage or pay the mortgage plus the interest. Interest-only mortgages will have lower monthly payments but the principle amount will need to be repaid in the future. You can also opt for fixed-rate or variable-rate mortgages which will also have an effect on your monthly payments.
What If I Can’t Make the Payments?
There are a few things that can happen if a homeowner is unable to make their monthly payments:
If you continually miss your monthly payments then you risk losing your home to the lender through repossession. The lender may want to recover the money they lent you, and if you are in no position to renegotiate the terms and resume full payment after an allowed period, your home may be repossessed and sold to release their funds.
2. More expensive rates
When a homeowner falls into mortgage arrears, they can often renegotiate the terms of the mortgage with the lender to avoid repossession. However, in the long run, the new terms can end up being more expensive than the original agreement which can make the financial burden heavier.
3. More debt!
If you have mortgage arrears then it may be necessary to take out another loan to clear them and avoid repossession. The additional loan means that you will make larger monthly repayments which can cause a constant cycle of larger monthly payments and increase loan terms.
Summary: How Much Can I Afford When Buying My Home?
If you can’t keep up with your repayments and your financial situation isn’t expected to improve, selling your home quickly may be the only way to stop repossession. Although this is probably not ideal, it is better to sell your home yourself because you will probably get a higher price than your lender at an auction.