Your deposit, please
Buying a house outright is out of reach for the majority - so a loan (or mortgage) is needed to allow the owners to pay off the property over time. In most countries, a mortgage requires a down payment (or deposit) representing a substantial percentage of a home's property price. Saving for a house deposit can be a goal worked into a monthly budget.
Working out how much to borrow
A mortgage lender typically assesses how much to lend based on information from the borrower. Factors might include income, spending (including spending on other debt), deposit size and credit history. Typically, banks in developed countries will lend 3 to 4 times a mortgagee's annual gross salary. But remember, it is not always necessary to borrow the full amount offered. Borrowing less might be better for a mortgage holder. What you can borrow and what you want to borrow don't have to be the same.
Ask “what if…?”
Because paying off a mortgage can take decades, it can pay for individuals to think about how their financial situation might change over the years. Consider asking a series of ”what ifs” – such as what if I lost my job, started a family, launched a business? Perhaps ask whether the scenarios are likely to have an impact on the ability to payback a mortgage and if the answers alter borrowing intentions. Factor homeownership costs that apply in addition to the monthly mortgage (such as taxes, insurance and regular maintenance) into figures.
House prices go up…and go down
Don’t forget that owning property means taking an investment risk – house prices can go down as well as up. ING Group chief economist Mark Cliffe explained in his second video for investors from the financial crisis that property bubbles (when homes are unsustainably expensive) formed in several places around the world before the global financial crisis. Cliffe tells how the boom in prices was followed by “an almighty bust” – which meant some homeowners were left with a mortgage larger than the value of their home. It might pay to take heed of expert warnings against getting a mortgage that is too big to handle.
Being conservative in assumptions and not overextending financially may offer protection against your “home-sweet-home” turning sour.
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