Investing in a home for the first time is one of the most crucial investment choices, many of us will make in our lives, so it is something that can also cause a lot of stress. However, it does not need to be like that, and you can help remove the uncertainty and fear by doing your financial homework and consulting an independent financial consultant to receive impartial and accurate advice. Below are some of the steps that you need to take to work out how big a mortgage you can afford, allowing you to work out a manageable budget and choosing an appropriate house.
Work Out Your Income & Expenditure
The first place to start is to work out your total income, and when working out the affordability of a mortgage, it is usually the pre-tax figure that is used. However, you will need to work out all your expenses for a month, which will also help to determine how much you can afford to pay every month. You will need to consider things like local taxes, utility bills, mobile phone bills, rent, internet, and any loans or car payments that you may have recurring monthly. You will also need to estimate your food bills, and once you have worked out your total expenditure for the month, you can then subtract this from your gross income which gives you an estimate of how much extra cash you have a month. Now that you know how much you can afford to pay, it is then time to work out how big a mortgage you can get.
Working Out The Size Of Your Available Mortgage
Many mortgage brokers such as the Mint Equity Sydney home loans specialists will be familiar with all the different rates and figures that the different lenders used, so to save yourself a lot of work you may wish to consult an expert to help you work things out and make the process simple. Most mortgage companies will use two sets of figures which are;
- Front-End Ratio Maximum – The figure is worked out by taking dividing your annual pre-tax salary by 12, and then multiplying by the ration offered, which is typically between 28% and 36%. If you earn $72,000 per a year, divide this by 12 which gives you $6000, and then multiply this by 0.28 if the lender offers the lower term which is $1680, which would be the maximum mortgage payment you can afford.
- Back-End Ratio Maximum – To work out this ratio, it is similar to working out the front-end rations. Divide your salary by 12, and the subtract your other financial obligations from the amount left, which will give you the back-end ratio, or amount you can afford to pay after your other bills.
Listen To The Experts
There are pros and cons with all types of mortgage, so when you seek the advice of a broker, make sure that you are honest and open with the information that they require. They will then be able to assist you in not only working out how much you can afford to pay monthly but also help in getting you the best mortgage deal possible.