You’re still at home with your parents, or maybe renting and wishing the monthly payment was going towards something you’ll own one day. Buying a home may seem like a dream, but it can become a reality… as long as you can afford it! Impulse buying is definitely out when it comes to purchasing a house.
But how on earth do you know if you will have the cash to fund a home purchase? If you’re sitting totting up in your head what you think you may have spare for a mortgage, stop it now! You really need to get it down on paper and review your spending properly rather than figuring out a few numbers in your head.
What you need is to work out what you have available by using real figures and checking out what you’re paying out and what money is coming into your bank account. Budgeting can’t be hurried, so set some time aside.
Budgeting for your mortgage
Say the word ‘budget’ and you might think of a politician with a red box. The principal is the same, but working out your budget shouldn’t be a dull experience.
It matters that you use the correct figures or else you could find you cannot afford your mortgage once the bills start appearing. If that is the case, your home might be repossessed, so it’s essential that you budget properly.
It’s all well and good thinking you won’t have a problem because you have no credit rating issues if you then discover your outgoings are higher than your monthly salary. Losing your home would not only be an awful experience, but it could also have implications for years to come.
What information do I need?
You need to get hold of your bank statement to find out what money comes in and what is going out. You don’t need paper versions as your bank’s app will be very useful for budgeting as it will have your monthly information readily at hand.
Income
First of all, you need to work out what income you receive. That seems obvious, but you must remember everything. So this includes items such as:
Pay
Income from self-employment
Benefits
Income from savings accounts
Other financial support (such as allowances from parents)
Outgoings
This is where your budgeting may take a bit longer. You’ll find more headings to work out than the income side of things. You need to remember all the bills you pay, so make sure you carefully look at your bank statement.
First of all, there are your household bills such as:
Rent
Service charges
Insurance
Utilities, which includes gas, water phone, council tax and broadband
Then there are your living costs. And be honest about this. If you spend a lot every month on nails and having your hair done, include it or you won’t get an honest picture. Include the likes of:
Monthly grocery shop
Takeaways
Clothes and shoes
Health and beauty
You’ll also need to work out how much you spend on other items, particularly insurances such as health insurance. There are also costs associated with the likes of:
Banking (For example, do you have an overdraft?)
Credit cards or loans
Regular savings payments
Care plans or
Monthly legal bills
Remember to include anything you spend on supporting children, pets or donations to charities. And then there are essential travel costs, so include items such as:
Car tax
Fuel
MOT
Parking costs and tolls
Insurance
Bus or train fares.
Finally, there’s leisure. If you like to go out regularly, no one is saying you shouldn’t. But you must include it in your budget to get the true figure. For this you need to include:
Days out
Hobbies
Books, music or films
Eating out
Gym memberships
Magazines
Holidays
The list isn’t inclusive of every possible area of spending, but as you can see, outgoings really do mount up. To help you, why not use the Money Advice Service, budget planner? It gives you a real insight into what to budget. Or you can always ask The Mortgage Dog to help you as we have our own budget planner. Our advisers are always happy to help you go through your planner so you don’t need to go it alone!
What’s next?
Now, this is a question that we can only answer after you know what you can afford. There’s no point dreaming of a four-bedroom, £300,000 townhouse if you can only afford a £150,000 semi.
But the best part about budgeting is you will know what you can afford and what mortgage lenders are likely to offer you based on your figures.
If the budget shows you’re not quite ready yet, don’t despair. Having a clear understanding of your current financial situation will be a great way to help you plan and put one in place.
For example, you may decide to find a cheaper gym membership or cut down on eating out. It doesn’t have to be painful, either. You might need to trim your spending by a few pounds a month to ensure you are more likely to be offered a mortgage you can afford.
If you’re thinking about buying a home let The Mortgage Dog help you. We’re a whole of the market mortgage broker in Washington with clients across the North East. Nothing in this blog constitutes investment advice.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
