Determine How Big a Mortgage You Can Afford.

Before you look for that dream house, you need to ask yourself what you can really afford to spend each month, and how much a mortgage lender is prepared to lend.

(as a side note the word Mortgage is a french word generally derived from two latin words 'mort' (meaning death) and 'gage' (meaning pledge or something of value that's forfeited if the debt is not repaid).

 Ecclesiasticus 21:8 (Septuagint - Apocrypha), "He that buildeth his house with other men's money is like one that gathereth himself stones for the tomb of his burial." , and hence that is why Jesus had a problem with money-lenders. So please be careful, and get as much information as possible before borrowing.


Steps

1. Before you begin house hunting, consult a building society, bank or mortgage broker to find out the maximum loan you are likely to have at your disposal.

2. Be Aware that the amount you are allowed to borrow will vary from lender to lender. This will depend on  your personal circumstances, such as regular income or assets. A typical figure for the UK would be up to four times a single annual income (although multiples of six have been known in recent years) or 80 per cent the value of any owned property you intend to mortgage.

3. The maximum value of your loan will also depend on whether you are taking out a mortgage in your name, or joint -mortgage with a partner (or co-buyer). A typical multiple is two-and-a-half times the combined annual income.

4. To work out the maximum value of any property you can buy, take your mortgage ceiling and add the amount you have saved in cash to use as as a deposit (or the money you will have at your disposal following the sale of your current property).

5. To make a quick approximation of your monthly payments (To do this you need to know the mortgage amount, the pay-back, and the interest rate.)

6. Add to your monthly payments, the cost of mortgage insurance, any land rent or service charge associated with the property, Council Tax for the area (you'll need to know the Council Tax band for that property) and an estimate of the utility costs, such as gas, electricity and water.

7. Compare this figure with your monthly net income to work out whether the mortgage is affordable.


Tips
If you have regular monthly debt payments (for example, car loans or credit cards), take these into account when determining that bottom-line affordability figure.

Warnings
Lenders can only tell what you might be able to afford based on your salary and debt level. You also have to feel comfortable with the reality of the monthly payment.

Don't assume that you can cut back your expenses and stretch yourself into a house payment. You can only live on beans on toast for so long.

If you take out a variable rate mortgage, be aware of the possible impact of a sudden increase in interests rate, (currently they are low, but UK's borrowing is known be around the £5 Trillion mark, a figure which has been kept very hidden, the Government spends about about 250% more than they get in collection of Tax revenues, so hence be very careful with regard to variable loans, as in Argentina in the 90s, when interests rate went through the roof and it got a little desperate over there with their currency, and they are still trying to recover!!!!!!).
When rates are around 3 per cent, a 25-year £200,000 repayment mortgage will require around £948 (currently- April 2013)  a month to be paid. If the interest rates creep up to 6 per cent, your monthly repayment will increase to around £1289. Can  your income sustain such an increase?