by Simon Wright

Created on: July 23, 2008

Nearly all of us are eager to get on the property ladder and, once there, to move up a rung or two. However, whether you are a first time buyer or an existing home owner considering upgrading to a better house, it is vitally important that you apply due diligence to checking that you can afford the required mortgage.

Quite often the process that we go through is firstly to look at houses that we like and see how much of a mortgage we would need to fund the purchase. We then go to a bank and ask them how much they will lend us to see if it will meet the amount we need to raise for the purchase.

This is an understandable approach. After all, looking for your dream house is the exciting part of the house hunting process, rather than evaluating your finances. However, as we've seen with the sub-prime mortgage crisis, too many borrowers have been prepared to overstretch themselves in the quest to have their desired home (and too many banks have been prepared to lend too much).

A better approach is to work from the bottom up, by which I mean that your starting point should be to work out what monthly amount you could comfortably afford to pay into a mortgage each month. Having upgraded from an apartment to a detached house quite recently, this is a process that I have gone through and I'll outline the approach that I took.

1. Work out your existing regular costs:
By looking at a few months' bank statements, it should be relatively easy to work out how much you spend per month on things such as food, gas and electricity, phone bills, insurance, travel, and any existing borrowing. (If you're an existing home owner, you can exclude your current mortgage payments).

2. Determine your existing disposable income
By subtracting your regular costs from your monthly salary, you will arrive at a figure that represents your disposable income. Note: This is money that you may currently put into a savings account or use to pay for irregular costs, holidays, etc.

3.Work out how much you could reasonably put towards mortgage payments
I used the word reasonably' here and previously I used the word comfortably'. These are important for several reasons. Firstly, no matter how nice the house is, you don't want to be in a position where you can't afford to go on holiday or do things that make you happy such as going to restaurants, music concerts, etc. You also need to consider what would happen if an unexpected cost emerged or if the bank increased the mortgage interest rates.

It's difficult

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