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How Much Can I Borrow with a Mortgage?

Lenders consider a number of factors when deciding how much you may borrow with a mortgage or a tracker mortgage deal. In the past, a bank or building society would often extend a loan based on the applicant's income. Many financial institutions would offer to lend up to three times an applicant's income as a matter of course. However, lenders have become cautious about lending more money than a borrower can afford to repay. When the price of an average home is high, borrowers may find it more difficult to secure a loan that will cover the value of the home they're looking for.

Assessing Your Finances

When you apply for a mortgage, a lender will perform an assessment to determine how much money you can afford to borrow. This affordability assessment will include your income, your current debts, your household living expenses, your credit history and your earning potential. Your income may include your wages or salary, your partner's salary and any commissions, bonuses, seasonal income or other financial resources that you have. Your debts might include credit cards, charge accounts, student loans, car loans and other liabilities. Living expenses include food, utilities, transport, clothing and other necessities.

A lender will weigh your income against your household expenses and liabilities to gauge your ability to repay the mortgage. If you are already overcommitted to other lenders, a bank may not be willing to extend a loan for a mortgage, or may limit the sum it will lend. If you have a poor credit history, with a history of arrears, an insolvency or a County Court Judgment, your borrowing options will also be restricted.

At one time, lenders might extend a loan based on a borrower's curent income. Today, lenders also consider your future earning potential. Your professional status, education and employment history will be taken into account to estimate how much you might earn in the future. Because a mortgage is a long term financial commitment, a financial institution must be confident that you will have the resources to keep up your mortgage repayments for as long as the contract lasts.

Lenders may consider personal factors like your marital status and the length of time you've lived at a certain address when deciding how much you can borrow. Being married and living at one address for a number of years indicate a certain level of stability, which suggests that you'll be more likely to pay off the loan. If you and your spouse both earn an income and you are taking on a joint mortgage, you may be allowed to borrow more money than you would as a single applicant.

Calculating Your Repayments

Many lenders recommend that mortgage applicants use online calculators to estimate how much they can safely borrow. Online calculators are free to the public and are available on financial services websites or directly through mortgage lenders. You can enter the value of the property, the lender's interest rate, the amount of your cash deposit and the length of the repayment term to estimate how much you may borrow and how much you will owe each month. Using this simple tool may help you avoid taking on a larger mortgage than you can afford.

Knowing how much you can borrow will help you choose a home within your means. Look for a house that gives you the features that you're looking for at a price that doesn't stretch your budget. Finding a competitive interest rate will ensure that your monthly repayments are manageable. Look for a reliable lender that will help you make a sound decision about how much debt you may safely assume.

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