How Much Money Do You Need to Earn to Get a Mortgage
Getting on the property ladder is never easy, and recent years have seen it become even harder. Planning for your first home, or even your next home can be a little daunting. It’s especially challenging to know what you can afford without testing the waters with mortgage applications. Unfortunately, borrowing loans is a time-consuming process, and it can adversely affect your credit rating if you get refused.
That’s why UPmoney have put together the key things you need to know when determining how much you need to earn to get a mortgage. Read on to find out more.
Trying to estimate how much you need to earn to get a mortgage without taking other relevant factors into account is a losing game. For example, 100% mortgages—that is, mortgages that don’t require a deposit—are almost extinct since the financial crash of 2008. And those few that do still exist will almost always require a guarantor. If you get over the initial hurdle of a deposit, you then have to consider the price range you plan to look in. A £250,000 house will mean a much higher mortgage than a £90,000 one. So let’s break down the different pieces to this puzzle.
Putting Down a Deposit
If you have enough savings to cover a deposit, you’re already ahead of the game. As a general rule, you should aim to have at least 10% of the cost of your home paid in your deposit. Typically, a mortgage provider will require 5% at the very minimum. Borrowing loans to get this money will likely affect your credit rating and may prevent you from being offered a mortgage, not to mention it will increase the financial burden on you when paying back that mortgage. Borrowing from family members is an option, but it is one that you should approach with caution—Many families have been torn apart by financial disputes.
We mentioned that some mortgages allow you to borrow the full value of the house if you can get a guarantor. A guarantor is someone who is deemed financially capable of covering your payments if you are unable to do so and is willing to be legally liable for those payments. Asking someone to be your guarantor is a significant request, and should not be considered if you are in any doubt about your ability to pay your mortgage.
Finally, if there is no way you can get a deposit together, and a 100% mortgage is not an option you will have to save. In this case, the amount of money you need to earn will include the money you will need to save first.
How Much Do You Need to Earn to Get a Mortgage?
The rule of thumb is that your mortgage should not make up more than 28% of your gross income. Most mortgage providers will use this figure when deciding whether to offer you a mortgage. It is also recommended that all of your debt, including any credit card and loan repayments, should not exceed 36% of your gross income. That second figure is vital because if you are looking to apply for a mortgage and have a finance agreement or credit card balance to pay off, it will increase the amount of money you need to earn to get a mortgage.