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.

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