Important Variables For Your Mortgage Affordability: What You Earn
There are a tonne of variables that can go into your lender’s decision. While this seems pretty simple, there are quite a few things you’ll need to take into account.
When it comes to finding out whether you can afford a mortgage, there are a tonne of variables that can go into your lender’s decision. Not only will you (hopefully!) have a deposit to put towards your new home, but you’ll also need to give your mortgage lender some details about your job and how much you earn so they can figure out how much to lend you.
While this seems pretty simple, there are quite a few things you’ll need to take into account, especially if your income comes from more than one source. I’ve put together a handy guide of what you’ll need to look out for when applying for a mortgage, and figuring out what kind of monthly payments you can afford.
Calculate your earnings
Let’s start at the beginning! Make sure you’ve got a pen, paper and calculator, because you’ll be doing some maths. The very first thing you’ll need to do at this stage is to calculate your overall earnings. This might sound simple if you’ve working in one job, however if you have multiple sources of income, all of these will need to be taken into account.
This figure will encompass everything that’s paid to you each year, including any income from second jobs, side hustles or other regular sources. Make sure you keep a record of the overall figure as well as the earnings you accrue from each source of income, as your mortgage lender might want to know more about where this income is coming from.
Looking to move home? Want to know more about the extra costs you’ll need to take into account when buying one? Check out my guide on making sure moving house is affordable. Factor in overtime and bonuses
Not only will you need to calculate your main sources of income, but you’ll also need to factor in any overtime and bonuses you receive. Your mortgage provider will want to know how regular the overtime is, as if you want to use it to prove you can afford the monthly repayments, your provider will want to be confident that the overtime is guaranteed each month. The same goes for bonuses, as if you couldn’t afford your mortgage without them, it might affect how much the provider is willing to lend you.
Are you a business owner, or self-employed?
You’ll also need to let your mortgage provider know whether you’re a business owner or if you’re self-employed. Here, it might be a better option to discuss your requirements with a broker rather than going straight to a lender, as a broker will have more knowledge on which mortgage provider will offer you the best deal.
Many providers will take an average of your business’ profit over the last 2 years, factoring your business’ recent performance. This is because if your profits have dropped significantly, your mortgage provider will likely use the most recent years’ figure.
Are you a company director?
As a company director, it gets a little bit more complicated. Most of the time, this is treated the same as employment, however if your shareholding is over 25%, this is treated as though you’re involved significantly with the business. The mortgage provider will likely then take into account the performance of the business when they’re deciding how much to lend you. Again, it’s a good idea to visit a broker who specialises in this area, as it can save you a lot of time when it comes to choosing the best lender for your circumstances.
How can I help?
Getting your mortgage sorted can sound complicated. Luckily – I’m here to help! I’m Gareth – also known as “Big G” – and I’m an estate agent and mortgage adviser with offices based in Worcester and Malvern. As a professional with plenty of experience in mortgages and homebuying, I can help guide you through the process.
If you’d like to find out more, simply give me a call on 01905 416000 and we can chat about your next steps.
Written by Gareth Evans, Mortgage Adviser & Director