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With property prices rising steadily, and lenders still reluctant to offer big mortgages to first time buyers, there has never been a more difficult time to be a first time home buyer. However, the outlook is improving as the economy recovers. As a rule of thumb, the majority of lenders will be prepared to lend you up to two and a half times your gross annual income. For example, if you were earning 50,000GBP per year, you would probably be able to get a mortgage for around 125,000GBP. Before you begin house hunting, it is worth finding out roughly how much a mortgage is going to cost you, and how much you can expect to be offered by a lender. To this end, an online mortgage calculator can come in very handy, although calculations can vary between lenders. Most mortgage calculators use a few stock terms, such as front end ratio, down payment, and debt to income ratio, to describe some of the numbers used in the calculation. To get the best out a mortgage calculator, you need to fully understand these terms. The front end ratio of a mortgage is the fraction of your annual gross income that the buyer will spend on mortgage payments. As a general rule, this should not be more than a third, although some lenders offer more than forty percent. Mortgage payments consist of four components: principal, interest, taxes, and insurance, sometimes shortened to PITI The debt to income ratio, sometimes called the back end ratio, is the fraction of your gross income that goes into paying debts, including your mortgage, credit cards, personal loans, and child support payments. The majority of lenders recommend that this does not exceed thirty six percent. During the darkest days of the recession, some lenders were refusing to offer mortgages with a deposit of less than fifty percent. However, things have returned to something approaching normality now, and most of the time you will be required to pay around twenty percent up front, and sometimes even less. Buying a house with another person can significantly increase the amount of money that you can afford to spend on a property, especially if they are a high earner with a clean credit record. If you have a lot of money saved up, you can get a more expensive property than your income would otherwise allow by making a larger down payment.
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This guide to mortgage calculator terms was written by Alia Grubman. The Alliance and Leicester website contains a mortgage calculator to help you work out how much a potential mortgage loan will end up costing you.
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