Mortgage
The biggest hassles for the home owners are mortgage. The bank asks lots of questions and you need to answer all of them. Sometimes, you won’t be given as much loan as you demanded for.
The bank is not wrong in their part as it’s their duty to ask you about your income and savings. After all, money is being borrowed by them. The bank has full right to inquire every single detail about you.
Let's look at the concepts of income, credit worthiness, and collateral and how they affect what you can afford.
Your income
The bank will decide the amount it will lend you only after knowing every minutest detail of yours. It will be interested not only in knowing your present savings, but also the income you earn and are likely to save in the 30 years to come. It will also take into consideration if you already have a loan or debt. Your assets, funds, stocks, etc, all play an important role in deciding the amount of loan you get.
The lender will also put your income figure into a number of formulas- The front-end ratio, having to do with your mortgage payments and the back-end ratio, having to do with your debt.
Your trustworthiness
The lender also takes into consideration if you have been trustworthy in paying your past loans. For this purpose, they will ask for a credit report. A credit report reveals your financial history. It reveals whether you have a track record of paying your bills on time or not and other such things.
Collateral
Generally, the house you buy is considered collateral for your mortgage. If by any chance, you fail to repay the loan, the house will be taken by the bank and will no longer be yours. It is very important that you avoid this scenario at all costs.
Personal considerations
How much you make, your creditworthiness, and how much collateral you have are all questions from the bank's point of view. How big a house you buy, depends upon the amount you get from the bank. Now, below are a few things from your point of view.
How long do you want to stay?
Before buying a house, think about how long you plan to stay there. It’s no point buying a house if you plan to leave it within a few years. You pay fees in buying a house and also while selling it. It’s not sure whether the value of your property has appreciated or depreciated. It is your luck whether you make a profit or a loss.
Comfort zone
Do not borrow money beyond your repaying capabilities. Always take the loan which you can pay back easily. Repaying the house loan is just one piece of the financial puzzle. There will be a lot of things which you will need to give up in getting your dream house. Ask yourself if you are really willing to do so.
Should you rent?
If you want to rent a house instead, take into consideration the advantages and disadvantages of owing a house and renting a house. Also, take into consideration if you will be better of in buying a house or renting a house from your finance point of view.
