Knowing how to budget is an essential part of taking your first steps towards buying a new property. Budget calculation is the task of working out how much you can afford to spend on a property. Without knowing how to budget for you property, you may end up building your hopes up after finding your dream home, only to be disappointed to find that you can’t make the purchase due to lack of funds. Conversely, you may find that after you calculate a budget for you property purchase that you can actually afford to buy a property more expensive than you thought.
This guide will show you how to budget for your property purchase. We’ll go through the important information about your finances you’ll need to jot down and then describe how to calculate how much you can afford for a property. Your budget is the first thing an estate agent will ask you on your first meeting with him or her. Your budget will also help narrow down the price range so that you’ll be able to start excluding some of the 1000s of properties which fall outside of your budget from your search efforts.
Information Required to Budget
The information required to calculate a budget for your property purchase consists of how much money you have available versus how much money you’ll need to spend on the property.
Your Regular Income
Record how much money you have coming in every month, after tax, through salary, interest, dividends or any other sources. This information will go toward calculating your budget for making loan repayments once you’ve purchased a property.
Make a note of how much money you have in savings or investments which can be accessed to pay for fixed property purchase costs such as deposits and fees. This figure combined with a loan can be used the budget calculation for your property price limit.
Your Regular Expenses
Write down how much you spend every month on bills, transportation, loans, childcare and other day to day costs you incur. This will be offset against your regular income to determine your remaining monthly budget for monthly property loan repayments.
Calculate The Budget
Once you’ve noted down your income and your costs there are two main budget calculations to work out.
How Much Mortgage Can I Borrow
Banks will generally offer mortgage loans ranging between 3 and 5 times your annual salary. For example someone earning 60 thousand a year after tax would be able to borrow 180,000 and 300,000 depending on which lender is used.
Highest Price Property
Once you’ve determined how much mortgage you can borrow, you can then calculate a budget for the highest price you can afford for your property purchase. To do so you need to know the lender’s Loan To Value (LTV) rate. The LTV is the maximum mortgage amount a bank will lend compared with the the price of a property. If a bank has an LTV of 90%, they will offer a mortgage of up to nine tenths of the property price and you will have to make up the remaining 10% from your own reserves.
If based on your budget calculations, a bank with a 90% LTV, determines that they can offer a mortgage of 270 thousand, for you to get the mortgage, the property would have to cost at least 300 thousand. To pay for the property ,if it did cost 300 thousand, you would of course have to add 30 thousand from your savings. If the property were to cost more than 300 thousand, you would need to find more of your own cash.
Other Costs to Consider For Your Budget Calculation
When working out how to budget for a property, you need to consider not just the purchase price, but other costs involved includingDon’t forget that as well as the deposit, you’ll need additional cash for
- Legal fees
- Removal Firm
- Survey costs,
- Mortgage Charges,
- Taxes or stamp duty,
- Potential monthly mortgage repayment
How To Budget With Tools
There are many tools to help you budget for your new property. Here are a few we’ve selected for you to try.