Thinking of buying that dream home you have always wanted? Can’t afford it and thinking of applying for a mortgage? Before applying for a mortgage you’ll need to think about more than just whether you can afford the monthly repayments. Several factors affect the amounts you can borrow as well as how much your monthly repayment will be. Mortgage providers will be looking at your income and outgoings to see if you can keep up with repayments and how change of circumstances would affect these repayments.
In today’s world you are lucky if the the lender will offer the loan-to-income ratio at four and a half times your income. Meaning if you earn R200 000 a year then you could get a mortgage of up to R900 000. Different houses cost different amounts and thus your interest rates and repayment amounts will differ greatly depending on how big the investment is. In an ideal would you try and save up as much as possible in order to put a big chunk of your payment down for your house and minimise the amount you might need to borrow.
The first factor you and the lender will look at is you income. Here are a few things to consider:
- Your basic income
- Any other earnings you have, whether it might be bonuses or a second job
- Income from your pension or investments, and
- Income in the form of child maintenance and financial support from ex-spouses
Then comes the expenses that you will have to deduct off your income which could include:
- Credit card repayments
- Any other loans or credit agreements you may have
- Maintenance payments
- Bills such as Tax, water, petrol, electricity, phone, broadband
- Insurance – building, contents, travel, pet, life, etc
Then you have to consider future possibilities that could affect both your income and your expenses, such as:
- Interest rates changes
- You or your partner lost their job
- You couldn’t work because of illness or injury
- Lifestyle changed, such as having a baby or a career change
All these things need to be considered when applying for a mortgage. You need to know how much you have after deducting your expenses from your income and whether you can afford the repayments you have to make each month. Will you be able to keep on paying if unforeseen events occur? Can you afford the house you want? Is it reasonable? Is this the house that will suit your needs in the years to come? Is the area your house in going to still suit you in the years to come?
There are so many factors to think of and that is why it might be advisable to speak to one of our Financial Advisors on managing your money in order to save up for that dream house you have always wanted.
