Understanding the Working of Mortgage Lender to Assess your Affordability


Prior to applying for a mortgage, you should think about whether you could afford monthly repayments. Mortgage providers would have a look at your income and outgoings to see whether you could keep up with the repayments if interest rates rise or your circumstances change. You should learn more about how lenders would assess how much you could borrow.

How mortgage lenders would assess how much you could afford

In the earlier times, the mortgage lender would base the amount that you could borrow primarily on a multiple of your overall income. It would be best known as loan to income ratio.

For instance, if you had an annual income of $50,000, you would be able to borrow three to five times this amount. It would give you a mortgage of nearly $250,000.

When you apply for a mortgage, the lender would cap the loan to income ratio at four and a half times your income.

They should also assess the level of monthly payments that you could afford. It would be done after taking into account several personal and living expenses along with your income. It would be known as your affordable assessment.

The changes were brought into effect by the Financial Conduct Authority after completely reviewing the mortgage market.

The mortgage lender should be able to look ahead and stress test your overall ability to repay the acquired mortgage.

It would also take into account the overall effect of the possible rate of interest which rises along with the possible changes to your lifestyle. It would be inclusive of redundancy, taking a break in your career, and having a baby.

It would in your best interest to have a mortgage lender who understands your situation. He or she should be able to handle your specific needs in the best manner possible and in a quick manner.

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