How Much Mortgage Can I Afford?

You’ll need to take a good look at your finances to work out how much mortgage you can afford. Read on to find out four steps that could help you.

John Fitzsimons, Brean Horne Last updated on 14 January 2022.
How Much Mortgage Can I Afford?

Working out how much mortgage you can afford is an important step in the process of buying a house. It will give you an idea of the types of property you’ll be able to buy and how much deposit you’ll need to put down.

Each lender will have its own criteria when deciding how much to lend you, but all will take your income, expenses and employment status into consideration.

Read on to find out how to calculate how much mortgage you can afford in four simple steps.

Review your finances

Taking a close look at your finances is an important step when you begin calculating your mortgage affordability.

It helps to go through your bank statements and credit card statements over the past three months and make a note of your:

  • Income: Any wages, bonuses, benefits or maintenance payments.
  • Essential expenses: Rent, household bills, travel expenses and groceries.
  • Non-essential expenses: Holidays, socialising, hobbies and other leisure activities.
  • Debt: Any credit repayments, such as loans, credit cards or overdrafts.
  • Savings and investments: Money that you put into a savings account, ISA or investment portfolio.

Even if you have a budget in place already, reviewing your bank and credit card statements will help you account for any extra spending or savings you might be making each month. It could also be a good opportunity to assess some of your costs to confirm whether you still want to pay them. For example, you may realise that you can cut back on streaming subscriptions or on your phone bill.

Having a clear picture of your monthly finances will help you estimate how much mortgage you can afford to pay while maintaining your living expenses.

» MORE: Costs associated with buying a new home

Calculate your house deposit savings

The size of your deposit will affect how much mortgage you can afford to borrow.

Typically, the lowest deposit a lender will accept is 5% of a property’s value if you are buying without a guarantor. Although these low deposit mortgages aren’t always readily available. So the amount of money you have saved will be important when considering what sort of mortgage you’ll be able to get.

Start by adding up any money you’ve saved for a deposit, which may be in a savings account or ISA.

If you plan on using any money from an inheritance or gifted deposit, be sure to add that to the total figure. Once you have an idea of how much you saved, make sure you have enough set aside for additional house buying costs.

This includes:

The remaining sum of money will be how much you can afford to put down for a mortgage deposit.

» MORE: How much should I put down for a mortgage deposit?

Estimate how much you can borrow

Each lender has its own criteria for deciding how much money you can borrow for a mortgage but all will take your income, employment history and credit history into consideration.

A mortgage calculator can help you work out roughly how much a lender might offer you. Most calculators use your income, an estimated property value and the amount of deposit you have available to calculate your potential loan amount.

If you have more specialised circumstances – for example, if you’re self-employed or have seasonal income – it may be worth using a mortgage adviser for a more accurate estimate.

Mortgage advisers have access to a wider range of lenders and may be able to find a provider that accommodates your financial situation.

Balance your mortgage repayments and living costs

Once you have an idea of what you can borrow, you’ll need to decide how much mortgage you can afford to pay each month and how this will affect your budget in the future.

It is important to consider whether you’ll have enough money left over after your mortgage repayments for your regular living expenses. You should also consider the possibility of unexpected costs. As a homeowner, it will be your responsibility to pay for repairs if, for example, your boiler breaks down, so you need to factor in how you might pay for unforeseen household expenses.

While the idea of buying a larger home, covering the cost of renovations or paying off your mortgage faster may sound appealing, you’ll need to weigh this up against taking on a bigger mortgage and having less disposable income each month.

It is worth thinking about the type of lifestyle you would like to have once you have moved in. For example, if you’re planning on starting a family, you may need to have extra money set aside to cover childcare costs or a drop in income.

Likewise, if having money available to go on holiday each year is important, you should consider whether that will be affordable once you are paying a mortgage.

Overall, the amount of mortgage you can afford will depend on your personal circumstances and financial goals once you’ve bought a home. So it’s important to have a clear idea of your current and future financial commitments when deciding what type of mortgage you plan to apply for.

» MORE: What you should know about mortgage payments

Image source: Getty Images

About the authors:

John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more

Brean is a personal finance writer at NerdWallet. She covers a range of financial topics and has written for consumer titles including Which?, Moneywise and The Motley Fool. Read more

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