A number of factors tend to influence the decision as to how much amount that you can borrow for a mortgage. Some of the factors may relate to your ability to repay from your current income and how much money the lender is willing to lend on the yearned property. In such cases, where banks and lenders are involved, they have to make sure that the lending amount would be repaid in the given period – monthly or yearly – and enough amount would be left to meet other expenses.
To know the answer for how much can I borrow?
There are some considerations that you must take into account before you opt to borrow the money.
But you should not worry. We have got you covered.
How much should you repay for a mortgage?
The factors that would determine the amount to be used for the payment of the loans are:
Percentage of income
There are lenders that suggest that the amount to be repaid in the name of mortgage and loans (that are also referred to as fixed payments), should not be exceeded from 30-40 percent of the gross income. If you have the information regarding your fixed payments that you should incur in your income, then you can find out how much the lender will allow the repayment for a mortgage.
Many lenders offer to calculate the amount of loan that you would be eligible to apply for, online. These automatic website calculators may not identify your current debt situation. Therefore, you should contact the mortgage broker or the bank personnel to have a better idea of your eligibility.
Uncommitted Monthly Income (UMI)
Many lenders offer to calculate the minimum ‘surplus’ that is the amount which is left after paying for the fixed payments, and deduction of the living allowances every month. The minimum surplus is referred to as – uncommitted monthly income (UMI), whose value varies across different banks.
If a couple is applying to borrow the loan, then the lenders will need the income information for both the spouses, similarly if the couple has children, then the amount of surplus will obviously be less, because the deduction of living allowance would be bigger as compared to the expenses of a couple without children.
In cases where the borrowers need a high proportion of the property price, lenders expect the borrowers to have an extra source of income to guarantee the repayment of loan borrowed. It is important to deal with the uncertainties that may arise in the future, such as, raise in the interest rate or a reduction or change in income. For instance, if a borrower wants to have 95% of the purchase amount, lenders may want to look at a monthly UMI that should be around $700 to $1000.
Who else you can add to share your bills?
You can involve your property-mates to pay for the mortgage. As mentioned earlier, the percentage may vary according to the conditions of the banks or lenders, some may take into account 70-80%of the house rent with respect to your income, while many others won’t.
To take full advantage of your borrowing plans, you should provide the details regarding your income and expenses, and ask them to make the estimation regarding how much amount you can borrow from lenders. Otherwise, your mortgage broker can also do this for you.
Depending on the details you will provide to a lender or to know the exact amount of how much can be borrowed the lender will provide a pre-approved amount against the amount they are willing to offer.
How much a bank agrees to lend for a property?
Usually, you can expect a lender to offer 80% of the price of the property that you are willing to have. Generally, lower percentages of loans are sanctioned for the outskirts of the urban areas. The figures that vary according to the type of the property are called LVR (Loan to value ratio).
Sometimes, a lender may agree to pay 95% of the property value, but in the long run, it tends to become risky for him as well as for the borrower.
Other than this, you may have to pay extra costs while opting for the high proportion of a purchase price or the property value such as:
- The bank will charge for the mortgage indemnity insurance or the low-equity premium if you apply for more than 80% of the purchase price to secure future repayments. It is not something that will prevent you from repayment, but it will add to the total amount that you borrow.
- The lenders may also ask for the actual value of the property that you have selected. If there exists a large difference between the actual value and the purchase price, then lenders generally work out to lend the minimal figure. As the rule suggests, if you apply for the highest borrowing value, then it is necessary to get yourself registered for insurance.