How big a mortgage can I get?
October 15, 2014 at 1:51 PM
With house prices going nowhere but up at the moment, particularly in Auckland and on the North Shore, it’s no wonder that one of the most common questions mortgage borrowers have is ‘how much can we borrow?’
Not only is the question relevant to the quality of the home you are going to purchase, it may affect your ability to even afford a basic property that meets your fundamental needs. The answer to what mortgage you may qualify for is going to depend on your personal circumstances and, for accuracy, will really need to be assessed by a mortgage broker on your behalf.
Takapuna based mortgage broker, Christine Lockie, says a person’s eligibility and the sum they can borrow against a property will be determined by:
- Single or joint fixed income
- Size of the deposit
- Number of children
- Level of fixed outgoings
“Gone are the days when the rule of thumb was that your fixed payments (mortgage, rent and debt) should not exceed 30 or 40 per cent of your income. Nowadays banks decide on whether you qualify for a mortgage and, if so, for how much, on the basis of what they call uncommitted monthly income.
“Each application has to be assessed on an individual basis, and each bank will have its own criteria for what it deems the minimum fixed cost per adult and child in the family should be. They then work on what’s left over at the end of the month,” says Christine.
Your level of debt is not necessarily a deal breaker if you have a very high income. Outgoings could be well above 50% of your income, provided there is a reasonable level of uncommitted monthly income remaining.
The deposit is extremely important because banks regard the deposit as your hurt money. In other words, the amount of skin you have in the game is a measure of your commitment and reliability.
“Banks do not like to give 100 per cent loans – unless you put up another property as surety – because it would be too easy to just walk away from the mortgage, which is what happened in the United States at the start of the recession.
“Servicing for any borrowing above 80 per cent will be calculated at a higher interest rate, regardless of what the going rates are. Where there is less than a 20 per cent deposit, the criteria are a lot harsher and stricter.
“Of course we can still achieve discounts on interest rates for loans over 80 per cent, but there may be added costs to cover valuation requirements and low equity fees. Both you and the bank will need to have a valuation done on the property too,” Christine says.
The website Sorted.org.nz suggests that for people borrowing 95 per cent of the purchase price, some banks will want to see a UMI of $750 to $1000, but it really depends on the bank, says Christine. “All the banks are different, and they all build in their own required monthly surplus.
“That’s why it pays to shop around, which is what your mortgage broker will do on your behalf.”