Where do we want to live?
What type of house are we going to buy?
Can we afford it?
The questions go on and on. Once you’ve decided on the type of house, location, features and price, you’ll have to apply for a mortgage from either a bank or a mortgage lender. The requirements are almost the same for most mortgage providers, but how can you afford the mortgage?
In this article, we’ll show you tips to help you get approved for the mortgage loan you are applying for. Check them out!
1. Income – The first thing that lenders will look into when you apply for a mortgage is your income. You will need to provide evidence that you can afford to pay for the loan. Here are the types of documents that you can present.
- Payslips – For employed applicants
- Tax returns – For those who are self-employed, freelancer or contractor
- Bank statement – For pensioners or those who receive allowances
Documents might differ from lender to lender, but the important thing is that you can prove that you have the money to pay the mortgage in the long term. You also have to let your lender know if there is a possibility of your income going up or down.
2. Spending – Aside from income, lenders are also checking to see how much you spend every month. In the case where your income is high but your spending is higher, you’ll most likely get rejected. What you have to do is list down all of your expected and unexpected expenses each month and analyse if you can still pay the mortgage on top of your expenses. Here the expenses you should consider:
- house maintenance
- gas, electricity and other heating costs
- water bill
- telephone and internet bill
- transportation allowance (going to work or school)
- buildings insurance (your building should be insured)
- house rent
3. Future Affordability – The mortgage lender also checks whether you can still afford paying the loan after 5 or 10 years depending on the market. The interest rate could go higher, meaning the amount you pay monthly will also increase.
4. Down Payment – How much down payment can you afford? Usually the down payment is between 3.5% to 20% and the rest will be the amount you will apply for mortgage. Most home buyers make the mistake of using all their savings for the down payment because they think that they will have smaller monthly mortgage payments if they do so. Why is this a mistake? They did not leave enough savings to cover other expenses and they do not have any money for emergencies. So when paying your down payment, make sure there is still something left for you to spend on basic necessities or to use in the case of an emergency. Your life shouldn’t come to a halt just because you’re paying your mortgage.
Mortgage lender requirements may vary but the concept is still the same. They are looking into whether you can afford the monthly mortgage payments on top of your living expenses. To compute how much mortgage you can afford, check out of mortgage calculator here.