Are you ready to start house hunting? Many people find it hard to know where to begin. You might already be browsing property websites but still aren’t 100% sure what you’re looking for. You need to understand your budget to have an accurate idea of what you can buy.
Why is Determining Your Budget So Important?
Going into house hunting without an idea of your budget is terrible – you won’t know where to begin. It helps to know the price range of the houses you can buy so you can be more selective with your choices. It also gives you an idea of the kind of mortgage you can get. For example, if you’re a high earner, you may be able to acquire a high value mortgage for a home worth over £1million. Then, you’ll know you can look at properties in the higher price brackets!
With how important a property-buying budget is, it’s time to begin figuring yours out. Don’t worry – it’s not as complicated as you might think! Here’s what you need to factor in.
How Much Have You Saved for a Deposit?
The first number you need to look at is the amount you have saved for a deposit. Most first-time home buyers spend years building a good deposit so that they can buy an ideal first home. As a general rule, your deposit will be around 10-15% of the property’s value; if you have saved £20,000, that might mean you can purchase a £200,000 home with the right mortgage.
Of course, there is some variation. There are some mortgages that allow you to use less than a 10% deposit, but this is rarer. Also, some property buyers prefer to use a 20% (or more) deposit to get a better deal.
Do You Have a Good Credit Rating?
On top of your saved deposit, you must also factor in your credit rating. Things like debts and payment history determine your credit rating and shows lenders whether you are a reliable person to lend money to. Naturally, mortgage lenders will look closely at your score before giving you an offer. If your credit score is low, it’s best to work on building that before applying for a mortgage, as you won’t get a good deal otherwise.
What Monthly Payments Can You Afford?
Knowing how much you can afford to pay towards a mortgage each month is vital. Doing so will take a bit of calculating, and you’ll need to consider things like your monthly spending habits. Looking at how much you spend monthly right now is a good way of seeing how much you’ll be able to afford once you have a mortgage.
What’s Your Income?
Last but not least, consider your income when determining your property-buying budget. Generally, mortgage lenders will only lend around 4-4.5 times a person’s salary. So, if you earn £40,000 per year, a mortgage lender isn’t likely to go above £180,000. This calculation can help you work out precisely what you can afford!
So – How Much Can You Afford?
Have you worked out how much you can afford? It might be less than you expected, or it might even be higher than you thought! Factoring things like your income, savings, and monthly spending habits into the equation will help you land on a reliable figure. Happy house hunting!
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