Questionnaire: How Far to Stretch Financially on Your Home
Different people will advise you differently when it comes to how much you should stretch yourself to buy your dream home. Some people will urge you to borrow as much as you can, while others will advise a more cautious approach. You must be realistic with yourself about how much you think you can borrow. What suits another may not suit you, so listen to what your instincts are telling you.
Lenders have made it increasingly difficult for you to borrow more than you can afford, but you should still be weary as to how much you want to stretch yourself.
These few questions should give you a clearer understanding as to how far you should stretch yourself to buy your first home.
Your DebtHow would you describe your debt?
a. I don’t have any debt or loans
b. I have some student loans and one other loan for under £5,000
c. I have debts of over £5,000
Your AnswersIf (a) was your answer and you don’t have any debt you are in the perfect position to stretch yourself financially as you will have no other outgoings or debts to pay.
If your answer was (b) then you should be careful as to how much you borrow on your mortgage as you will have to be careful you don’t fall behind on these payments.
If you have debts of over £5,000 you should not stretch yourself a lot when it comes to your mortgage or you could find yourself missing repayments.
How Much should you Borrow?How much you decide to borrow can depend on whether:
a. You will be getting a mortgage with a partner
b. You will be buying by myself
Your AnswersIf you answered (a) and you are getting a mortgage with a partner then you will normally be able to borrow 2.5 times your joint income or up to 3 times the largest salary. For example if you and your partner’s wages total £50,000 you will be able to borrow around £125,000.
If (b) was your answer and you are borrowing by yourself you will normally be able to get around 3 times your income. You shouldn’t borrow more than this or you may find it hard to repay.
Disposable IncomeHow much disposable income do you have:
a. I normally have over £1,000 in disposable income every month
b. I normally have around £800 a month in disposable income
c. I have less than £500 a month in disposable income
Your AnswersIf you answered (a) then you should have quite a lot of spare income at the end of the month to pay for bills and other costs associated with a house, you should be in a secure position to borrow as much as possible for your mortgage.
If you answered (b) then you should think carefully about how much money you want to borrow so you don’t stretch yourself too much.
If you answered (c) then you should maybe limit the amount of money you borrow so that you don’t run out of money towards the end of the month.
Your LifestyleWhich statement best describes your lifestyle:
a. I enjoy going out but do not do it regularly, I prefer to save rather than spend
b. I enjoying eating out but in moderation, I‘m good at saving and spending
c. I enjoy eating out a lot and spending money on expensive holidays
Your AnswersIf (a) you are a saver and not a spender then you should be able to stretch yourself as you will be used to saving and not mind sacrificing a few luxuries in order to pay your mortgage.
If you answered (b) and usually find yourself going out a couple of times a month you should be careful to make sure you have some money left over every month to treat yourself.
If you answered (c) and you usually spend a lot of your money on eating out and going shopping you should make sure you allow yourself plenty of extra cash and not swamp yourself down in mortgage payments.
It is never a good idea to stretch yourself too much when taking out a mortgage, but you should try and borrow as much as is realistically possible in order to get on the housing ladder. Try and picture yourself in the worst case scenario, for example if you lost your job and had no monthly income. Ask yourself how you would pay your rent/mortgage and how you would cope. In the current economic climate it pays to play it safe and not stretch yourself financially. This should not stop you from taking the leap into home ownership but just make sure that you are staying within your boundaries.