Can I afford a mortgage? Top 5 things to consider.

Buying a new villa, townhouse or apartment is an exciting time, especially as you discover and explore new neighbourhoods and eventually find your dream home. But how best to determine if you can afford a mortgage? To establish realistic expectations, you need to consider the following:

1. Assess your employment income

Banks and mortgage lending institutions will typically look to an applicant’s gross monthly income when deciding on a mortgage approval amount. Gross monthly income refers to your total monthly salary. Based on this amount, banks and mortgage lenders understand how much money you have available monthly to cover all your expenses.

If you regularly receive bonuses or commissions from your employer, ensure you include these in your calculations. Determine the likelihood of your bonuses or commissions for the coming year and add these to your monthly income. It would be a good idea to look at your historical earnings and then determine an average figure to ensure any estimates are conservative and likely attainable.

2. Take stock of your debt

Along with your income, banks and mortgage lenders will also want to know your existing debt, such as car payments or outstanding credit card balances. Carrying any monthly debt, regardless of the amount, could negatively impact your chances of receiving approval for a mortgage.

3. Identify your monthly expenses

Before deciding if a mortgage payment is affordable, it’s critical to have a clear understanding of what you spend every month. Sit down and think about what you spent last month on food, petrol, or any other transit costs, clothing, entertainment, personal items such as toiletries, self-care appointments and laundry, DEWA, and Etisalat. Depending on your lifestyle, you’ll see that these expenses can add up!

Now include homeowner-related expenses such as content insurance and maintenance and repair costs. The figure you arrive at is your monthly expenses and how much extra money you need to have on hand each month AFTER you pay your mortgage and other debts.

4. Expect change, and plan for it

When calculating your gross monthly income, consider the following:

• Do you plan to have children? Will one spouse become a stay-at-home parent, or will you hire a nanny?
• What about job security? How stable is your employment and your monthly income? If you were to lose your job, how quickly could you find another one?

5. Don’t forget your Emergency Fund

No matter your present situation, it makes good sense to have three months of living expenses – this means anticipated mortgage payment plus monthly expenses – set aside in case the unexpected happens. An emergency fund is your best insurance.

Entering the real estate market is one of the most significant decisions you’ll make in your lifetime. Many factors influence what you can afford, and it’s essential that you understand all the costs and the lending process so you can plan.

Being prepared and evaluating all of your finances and the costs of buying might not be as much fun as looking for a new home, but it’s necessary to know what you can afford when you do.