How Much can I Afford?

Buying a home is the biggest purchase most people make in their lifetime. A number of factors need to be considered when choosing a home – some practical and some more subjective. One of the biggest factors to consider is how much you can afford to pay on your mortgage.

Mortgage lenders advise, as a general rule of thumb, to consider taking out a mortgage of around three times your gross annual salary. If you are taking out a mortgage as a couple, the general rule is that you can borrow three times the larger salary in addition to one times the smaller salary. Alternatively, some mortgage lenders suggest couples taking out two and a half times the joint salary.

In low interest times such as these, you may be allowed to take out a larger mortgage than this, but beware that if the market collapses you could find yourself in deep water with a property that you cannot afford and cannot sell. Realistically, your mortgage payments should not be more than 35-40% of your net monthly income. Any more than this, means you could be borrowing too much on your mortgage. Also, if a large part of your salary is made up of bonuses, be aware that you could still afford your mortgage is your bonus is smaller than it had been previously.