Your maximum mortgage
When buying a house you do not want any unpleasant surprises, that is why it is important to know your exact budget before starting your search. In this way when you find the right house, you are confident enough to make a bid.
What is your maximum mortgage?
Before searching for your new home, you need to know what your budget is. In this way you won’t get disappointed when finding a house that may be out of your budget. The calculation of the maximum mortgage is complex and depends on a number of factors.
These factors include:
Later on this page, we will go into more detail about the different factors. Banks use these factors to determine how much someone can borrow to buy a house. It is important to realize that the maximum mortgage is not always equal to the amount that someone can sensibly borrow. Everyone has a different spending pattern. Therefore, we recommend that you also think carefully about your financial situation and not borrow too much. After all, it is important to have sufficient financial space for other expenses and unforeseen circumstances, even after buying a house.
In addition, it is also important to know that banks not only look at the income at the time of taking out the mortgage, but also at the future income. This is also called future- proofing. This looks at changes in income, such as changes in work or having children.
One of the most important factors that influences the maximum mortgage is the buyer’s income. Banks use income standards to determine how much someone can borrow. These standards differ per bank and can also differ per type of mortgage. In general, the higher the income, the more someone can borrow.
In addition to income, banks also look at the buyer’s financial obligations. Think of the height of any loans, alimony obligations, and other fixed costs. These obligations are taken into account in calculating the maximum mortgage because they affect the buyer’s financial space.
Another factor that affects the maximum mortgage is the Loan-to-Value (LTV) ratio. This is the ratio between the value of the home and the amount of the mortgage. The LTV ratio is calculated by dividing the value of the home by the amount of the mortgage. The higher the LTV ratio, the higher the risk for the bank. Therefore, banks often use a maximum LTV ratio of 100% or lower.
The mortgage interest rate also affects the maximum mortgage. The higher the interest rate, the lower the maximum mortgage. This is because a higher interest rate results in higher monthly expenses. To prevent buyers from being burdened with too high monthly expenses, the maximum mortgage is reduced with a higher interest rate.
Finally, banks look at the buyer’s qualifying income. This is the income on which the bank bases the maximum mortgage. The qualifying income may differ from the gross income because certain costs are not included in the calculation. For example, bonuses and overtime are not always included in the calculation of the qualifying income. There are various online tools available for calculating the maximum mortgage. These tools provide an indication of the maximum mortgage based on the data entered.
However, it is important to realize that this is only an indication and that banks still individually determine how much someone can borrow. Therefore, it is wise to carefully look at the possibilities and conditions of different banks before taking out a mortgage. You can of course research this yourself, but this takes a lot of time. Therefore, it is wise to engage an independent advisor for this. Independent advisors know all the possibilities in the market.
At last, it is important to realize that the maximum mortgage is not the same as the maximum purchase price of a house. There are other costs to consider as well. Be aware that, for these costs, you always need some savings to be able to buy a house. In the Netherlands you can lend a maximum of 100% of the value of the house. Which means that all buying costs, such as costs for a purchase agent, the valuation of the house, the NHG costs (more about this later) and notary costs. Therefore, it is wise to also take these expenses into account when determining the budget for buying a house.
The maximum mortgage is a complex calculation that depends on various factors, such as income, financial obligations, LTV ratio, mortgage interest rates, and qualifying income. It is crucial to keep these factors in mind when determining the budget for buying a house.
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