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property survey

Most people dream of getting their foot on the property ladder, but it’s a huge commitment and despite researching the costs associated with owning your own home, it is difficult to know whether you can afford it until you have actually made that commitment. So how do you know if you can afford to buy a home? You need to be sure that you are in the best financial position, that you understand other costs involved and have some sort of contingency if things were to go wrong.

Before you look to purchase a property you will usually need to find out how much you can borrow and arrange a mortgage agreement in principle. They will take all your financial income and outgoings into consideration whilst carefully looking at your credit file to get an idea of your credit history. All of these factors will help the mortgage lender to decide how much they are willing to lend you. Different lenders are likely to offer varied amounts, partly because they have different policies on what they will lend based on your annual salary and also depending on how much debt you have too.

Your deposit will usually need to be a minimum of 10 percent of the property value, however some lenders offer lower deposit mortgages as low as 5 percent in some cases but these are only usually offered to people with excellent credit scores and can increase the interest rate offered on the mortgage. Some lenders, however will request a higher deposit of anything up to 50 percent of the property value! This usually depends on the level of risk you are to the mortgage company. So you need to consider how much deposit you can afford to put down on the property. You may be able to get a better deal on a house if it is a quick home sale, providing you have no chain and can move quite quickly, which means you need to have your mortgage in place ideally. Having a lower deposit can often limit how much you are able to borrow, the more deposit you can offer a mortgage lender, the better position you are in and the better deal you can get.

Borrowing to fund your deposit isn’t ideal, but it can actually help to secure a better interest rate on your mortgage meaning you save money in the long run. You could potentially save thousands over the years. You will also need to decide whether you opt for a repayment or interest only mortgage, the latter being cheaper per month but you will need to pay back the capital at the end of the term. When calculating what you can afford, it’s a good idea to keep to a budget and stick to less than 35 percent of your total income for repayments. If it is likely to cost more than this, then you could be stretching yourselves too much potentially resulting in financial difficulty.

by Cormac Henderson

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