Mortgages

Mortgages

How much of a Mortgage Deposit do I Need?

When you start saving for a mortgage deposit it can be tricky working out how much you will need. There are a number of things that you need to consider.

How Much Can I Borrow?

A mortgage provider will tend to have a formula that they use to calculate how much you will be able to borrow from them. It tends to be based on the salaries of the people taking out the mortgage. This will enable you to know what sort of house price you are aiming for which will help you to start thinking about how much you will need to save up.

What Percentages to Lenders Want me to Provide?

The next step is to find out how much lenders will want you to provide. Normally they will want a percentage of the house value and as you know how much you can borrow, you will be able to work out how much you can afford with regards to buying a home and this will help you to be able to work out how much you will need to save up,

How Much is the House I Want to Buy?

The last part of the equation is how much the house will be that you wish to buy. When we first start saving for a deposit, it is unlikely that we will be house hunting as we will need a while to get the money together and the houses we like will probably be sold by the time we do. However, it can be a good idea to start looking at houses selling in the area that you are interested in and it will give you an idea of how much they will cost. If they are too expensive for you to afford with the mortgage that you can get, then you will need to pay a bigger chunk of deposit in order to afford it. Of course, this will mean that you will have to wait longer to save up and you will have to decide whether this is something that you are prepared to do.

There are other advantages in saving up a larger deposit too. Even if you do not need a huge one for the type of home that you want, it can be wise to think about saving more anyway so that you can borrow less. This will enable you to reduce the amount of money you pay for the mortgage. You will pay less interest because you will not owe so much and the interest is calculated base don how much you borrow. You will also potentially be able to repay the mortgage more quickly because you are borrowing less or have lower repayments to make each month.

Therefore, there is not an easy answer to how much you should save up for your mortgage deposit. However, probably the more the better would be a good place to start. You will be able to calculate roughly what the minimum you need to save is but you could find that you will benefit a lot if you can put more towards paying for the house than the minimum. One problem is though, that house prices tend to rise all of the time and this means that you could find that even though you are saving more over time, the price of the house is rising as well, so you are not gaining anything. Therefore you need to find a way of making sure that the amount you are saving is going to be more than the amount that house prices are increasing.

Mortgages

How Can I Save for a Mortgage Deposit?

When you want to buy a home for the first time, you will normally eb expected to save for a deposit if you want to borrow the money to buy the house with a mortgage. There are two reasons for this – the lender will want to see that you are capable of saving as that will give them faith that you will repay the mortgage but it will also mean that they do not have to buy all of the house and so if you miss repayments and they sell it, it is more likely that they will get back enough money to cover their share even if house prices have gone down or if their selling costs are very high. The amount that you need to put together will normally be a percentage of the cost of the house and that will be determined by the lender. Therefore, you will need to find out what this will be and then you will know what to aim for with your saving. But how can you save?

Set up an Account

The first step is to set up an account where you will put the money that you are saving up. It is a good idea to search around a bit to try to find an account that offers a good interest rate. This is because you will find that you will gain interest this way and you will not even have to do anything yourself! Even if interest rates are really low, finding one that is a bit higher can make a difference, particularly as your savings grow.

Pay in Regularly

Once you have your account you need to start paying in regularly. The best thing to do is to set up an automatic transfer that will put some money into the savings account when you get paid. Doing it at this time means that you will know that the money will be available to pay in. However, it is a good idea to think about how much you should pay in. If you have an instant access savings account, then it could be a good idea to make this figure on the large side as you can always withdraw money if you need extra, but if it is not in your bank account to spend, the you will not be tempted to spend it. If you have a cheaper month and have money left at the end of the month put that money in as well. It can also be good to see if you can think of some ways to get more money available to put into the savings account so that you can reach your target more quickly.

Cut Back on Spending

One way to have more money available to save is to spend less. This can be achieved in two ways. You can compare prices on everything you buy and then switch to buying cheaper items. You can also cut down in the amount of things that you are buying and that will enable you to have more money. You could choose to do just one of these, but both will have more impact. You could make huge changes right away or make changes slowly so that it is easier. It will really depend on how quickly you want to have the deposit ready.

Look for Ways to Earn More

It can also be handy to look for ways to earn a bit more. So, anything from doing more hours at work, taking on a second job, monetising your hobby or selling things you no longer need, there are lots of options you could consider which could help you to get the money more quickly.

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