Methods for Securing a Loan in the Amount of $250,000

Updated on December 1, 2022.

5min read

You can borrow up to four and a half times your income, so a combined income of around £55,500 should theoretically allow you to get a £250,000 mortgage. However, affordability rules are slightly more detailed, and other factors may be considered. You can get a better idea of how much mortgage you could get and what your monthly payments might be by visiting this page.

Use our Mortgage Calculator to determine how much you can borrow, how much it will cost you each month, and what your loan-to-value ratio will be.

How much money do I need to make to afford a $250,000 mortgage?

Several factors influence how much you can borrow. These are:

• Loan-to-income percentage
• Loan-to-value (LTV) ratio
• Affordability
• Previous credit history
• Earnings source
• Age

Let us examine each of these in turn.

What exactly is the loan-to-income ratio?

The loan-to-income ratio compares the total size of your mortgage loan to your annual income (that is, the total annual income of all buyers named on the mortgage). Nowadays, the most you can borrow is four. 5 times your annual salary In exceptional circumstances, some lenders may offer more for a limited number of customers. In contrast, they may not offer you this much.

Here's an illustration:

You and your partner make a total of £56,000. Multiplied by four This totals £252,000 So (on paper), this is the most you can borrow.

Knowing your maximum borrowing capacity does not guarantee that you will obtain this mortgage size. Your lender will also have to consider the loan-to-value ratio and affordability.

What exactly is the loan-to-value (LTV) ratio?

Another important ratio to consider is the LTV ratio. It means, 'How much of the total value of your property is covered by the mortgage loan?' A low loan-to-value ratio typically means you can borrow more, whereas a high ratio is more restrictive.

The LTV ratio is determined by your deposit or (if you are not a first-time buyer) how much of your current property is mortgage-free - i.e. e how much equity you have Also, if you're selling one home to buy another, you can improve your LTV ratio even more by using savings as an additional deposit.

The LTV ratio is frequently expressed as a percentage - e.g. g 'an 80% mortgage' means that you have paid 20% of the purchase price in cash or equity and the remaining 80% with a mortgage. In other words, a high percentage mortgage is the same as a low LTV (at first, this can be confusing). )

However, there is a simple way to remember it: the more cash you can offer up front, the more you will be able to borrow. You can borrow less money if you have less cash.

Lenders are generally comfortable with mortgages of 80-85 percent or less, so if you have enough deposit to cover 15-20 percent of the purchase price, you should be able to borrow up to 4 percent. 5 times your earnings

However, other factors, such as affordability, must still be considered.

What exactly does mortgage affordability imply?

Your lender wants to ensure that you can afford your mortgage payments in practice, not just on paper. This means they will consider your other outgoings and spending, both essential and non-essential, to determine how much you can truly afford.

For example, if you work in a city but live outside of it, you will have to spend money on commuting. This is a necessary expense that cannot be avoided, so your income is effectively reduced. The lender will want proof that you can afford both your mortgage payments and (say) £200 in train tickets per month.

When submitting your mortgage application, you must provide as much information as possible about your monthly spending habits. A good tip is to cut back on non-essential spending as much as possible in the months leading up to your application (if you've been saving for a deposit, you've probably already been doing this). Also, see how much you can cut from your essential spending by shopping at cheaper stores, taking the train instead of a bike, and so on.

You should be able to borrow the amount you want if you can demonstrate a consistent monthly surplus that comfortably covers your monthly mortgage repayment.

Other considerations in obtaining a £250,000 mortgage

Several other factors may influence whether you can borrow the full $4,000. 5 times your annual salary These are:

Previous credit history

You must have a track record of borrowing and repaying money. Learn what factors can affect your credit score and how to improve it.

Earnings source

Borrowers with steady, predictable sources of income are preferred by lenders. This means it may be more difficult if you are self-employed or work in a profession deemed less secure or risky. Find out how to get a mortgage if you are self-employed.

Age

There are no set age limits on mortgages, but lenders typically have their own, which can be as low as 55. If you're in your late 50s or older, proving a steady enough income for the next 20 years can be difficult.

How much will a $250,000 mortgage cost me?

The cost of your mortgage repayments will vary depending on the type and length of mortgage deal you are offered, as well as the rate of interest you can secure.

What kind of mortgage deal are you looking for?

If you have a fixed rate mortgage, your payments will be the same for the duration of the deal (usually two to five years, but sometimes longer). If you have a variable rate mortgage (such as a tracker, discounted, or SVR mortgage), your interest rate, and thus your repayments, can fluctuate. However, if the Bank of England base rate is low, tracker mortgages often have the lowest interest rates. If you're willing to take the risk, this could help you save money on your mortgage.

How long do you want the mortgage to last?

Most mortgages are fully repaid over 25 years, but you can choose a longer or shorter mortgage term. Your mortgage term could be as long as 35 years or as short as five years (this is frequently the case when someone remortgages for the final time).

Longer mortgage terms generally result in lower monthly payments because you have more time to pay off the loan. As a result, the total amount you repay will be higher - for the same reason.

Here's an illustration:

A £250,000 25-year mortgage with a 2% fixed rate would result in an initial monthly payment of £1,060. The same mortgage, however, on a 15-year term would require an initial monthly payment of £1,609.

However, assuming you could keep 2% interest (by remortgaging on a regular basis), the 25-year mortgage would total £318,000, whereas the 15-year mortgage would total £289,620.

How can a mortgage broker assist me in obtaining a £250,000 mortgage?

Using a mortgage broker gives you the best chance of borrowing the maximum amount you can afford. Your broker will provide you with unbiased advice on the best deal for you and will assist you at every stage of the application process. An independent mortgage broker also has access to more deals than you will find on the high street or online, so you can be confident that you are getting the best deal available at the time.

Was this article useful to you? Then you might be interested in our article on renting vs. buying.

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