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What Mortgage Can You Afford?
Thinking about getting onto the property ladder, but don't know what rung you will be able to jump on? Buying a house is one of the biggest, if not the single largest financial transaction you'll ever make in your life. Therefore, it pays you to get it right.
Finding out what mortgage you can afford depends on your financial situation before you apply for a mortgage. You'll need to take a few things into consideration, such as how much capital you have access to and how much you will be able to afford on a monthly basis.
Ask yourself the following questions.
- What Size Of Down Payment Can You Afford?
- A typical mortgage requires what is known as a down payment, which is worked out as a percentage of the value of the property. If you want to buy a house valued at $100,000 / £100,000 and the mortgage requires a 5% down payment you will need to have access to at least $5,000 / £5,000. For a lot of people the down payment dictates the mortgage that you can afford, and consequently the property you can buy.
- Can You Afford The Legal Costs?
- Not only will you have to pay for the down payment, you will also have to pay for a range of legal fees. You will have to pay a solicitor or lawyer to sort out the various legalities associated with the purchase such as contracts etc. In the UK you will have to pay Stamp Duty depending on the value of your property. This is worked out as 1% of the value of the property.
- Will You Be Able To Afford The Monthly Repayments?
- Even if you choose an interest only mortgage you will have a lower monthly cost, but you will only be paying back the interest charged on the initial capital - you will still owe the entire initial capital. Ask yourself, will I be able to afford the full monthly repayment?
There are a few things that can influence your decision, such as what you current employment status is as opposed to the future.
- Will you be receive a pay rise in the future?
- How stable is your income?
- How much savings will you have after you pay the down payment?
- If you lose your job will you be able to afford the repayments?
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