How much can I afford | Home Loan Guide | Osprey Mortgage Lending WWW.OSPREYMORTG AGELENDIN G.COM
How to Balance income and expenses It’s about placing your incoming versus outgoing money. What you can afford should always be to draw up a real budget showing what money is coming in and what will still need to go out once you take out your home loan. Don’t forget to include existing loans, credit cards and other debts.
Use a ‘How much can I borrow calculator’ You can use an online borrowing calculator to give you an indication of what you may be able to borrow. A borrowing power calculator will ask you to enter sources of income, as well as all your expenses and then give you an idea of how much a lender thinks you may be able to borrow.
How your credit score affects your borrowing power What you earn and What you spend When they’re considering how much you can borrow, a lender will also factor in your access to any other credit – such as personal loans, home loans and even credit cards, even if you don’t owe anything on them. That’s because they need to factor your need to meet these potential repayments into your capacity to repay a home loan.
The bigger your deposit, the more you can afford If you need to borrow more than 80% of the home’s value, a lender will ask you to pay the lender’s mortgage insurance (LMI), which is an insurance that covers the lender if you are unable to meet your loan obligations. So the cost of paying for this will eat into the amount you have to spend on your new home.
Handling account of changing possibilities Finally, when you’re considering how much you can afford, you shouldn’t simply look at your current circumstances but also your future ones. A good approach is usually to leave a ‘buffer’ of at least a mortgage repayment or two in your savings account, just in case you need it. You may also consider taking out income protection insurance or mortgage protection insurance to help you meet your loan repayments if you’re off work for some time due to illness, accident or trauma. After all, it’s always better to be enjoying your new home than worrying about how you’re going to pay for it.
CONCLUSION The clearest way to know what you can afford is to speak to a lender about conditional approval. Conditional approval is a type of preliminary approval or “pre-approval” from a lender, indicating that you should be approved for a home loan up to a certain dollar limit. A lender will work with you to assess your situation and give you a realistic picture of how much you can borrow.
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