Check if you qualify for a mortgage: minimum income
For many homebuyers, the process of obtaining a mortgage initially looks like a dark and confusing forest. Where to start, which bank to approach, which repayment method to choose, how much loan to take out - these and other questions are on the minds of potential new buyers.
What's most important when taking out a home loan and how to prepare for it.
Liabilities must not exceed 40 % of income
For the Bank, the most important thing is that the borrower has a stable and sustainable income, i.e. a salary, a wage, an income from an individual activity, including a business licence.
The most important thing is that there is continuity and history of income so that it can be assessed and measured. You need to calculate your financial obligations. These can be credit cards, consumer loans, hire purchase or services. It is recommended that all financial obligations not exceed 30 % of income.
If you have not had any financial commitments until now, how do you know if you can handle them or if they will be a burden. One simple thing to do is to try to set aside a similar amount each month for savings. And then you can see if you are in trouble or not.
The bank may also refuse to grant a loan because there is a minimum income threshold. For example, the minimum income for one person applying for a loan should be 500 euros and for two people 800 euros. Before you consider taking out a loan, you can try to see what you can get with a loan by using home loan calculators. Almost all banks have such home loan simulations.
Once you have assessed your financial possibilities, you must measure them against your wishes.
It is very important to match your wishes with your possibilities. When choosing a home, think about the type of home you need: do you need a larger or smaller home, do you need a home in the city centre or do you prefer to live outside the city? You should consider that your needs may change in the years to come.
As most people interested in buying a home already know, when you take out a loan and buy a home, you need to have a certain amount of capital, the minimum requirement being at least 15 % of the home. However, in some cases, a down payment of 20 % or even 30 % is also required. This depends on the liquidity of the property to be purchased.
Whether you buy with or without a loan, you will always need to have some extra money available, as there are unexpected costs when you buy. If you buy with a loan, you will have to pay an opening fee of 0.4 % of the loan amount, plus a mortgage fee to be paid to the notary. It is estimated that if you buy an average home worth €60-70,000, you will need to have an extra €800-1,000 for administration costs.
It is advisable to familiarize yourself with the terms and conditions of home loans. These are available on the banks' websites, which allows you to know in advance what the loan contract will be.
Three types of home loans
"When you fill out the application form, you need to decide what type of credit you need and which loan to choose. There are three main types of home loans.
There are two types of mortgages:
- a loan for a first home, for the purchase of a house or apartment, for the construction of a house or for the land on which you intend to build a house.
- The second type of home loan is a mortgage, which is usually given when you renovate or convert an existing property, or when you buy an additional home, a second or third home. And, for example, when you buy a piece of land but are not yet sure whether you will build a house on it.
- The third type is a consumer home loan, with which you can buy a less valuable house, a garage, a garden house. When you want to get the money fairly quickly, without having to mortgage the house and so on.
Once you have chosen the type of home loan, you need to decide how you want to repay the loan.
There are two main methods: linear and annuity. The linear method divides the total loan into equal installments, which are calculated for each month. In the linear method of repayment, the loan balance is at its maximum at the beginning and then decreases, and interest is paid on the loan balance. Therefore, the amount of interest is initially higher and then decreases until it stops.
In the annuity method, the loan repayments and interest are added together and equalized over the life of the loan. In this case, the loan annuity increases and the interest decreases, but the annuity remains the same. The general difference between the two methods is that the linear method requires higher initial payments that decrease over time, while the annuity method requires more or less the same payments.
It should be noted that the annuity method pays more interest over the life of the loan. Deferred repayment is possible The maximum repayment period for a home loan is 30 years. This is the longest period during which the loan can be repaid. Before taking out a loan, the bank asks you how long you want to use the loan and when you want to start repaying it.
The drawdown period is when the credit agreement is signed and the bank disburses the money. If the purchase is already known and the house is already built, while all the administrative steps have to be done, one or two months are perfectly sufficient to use the loan. In the case of a house under construction, you have to take into account the date when the house will be built and add a month or two to this period.
Deferment of repayment is a method of determining when the loan repayment will begin. It is possible to ask the bank for a few extra months of vacation when only interest is paid, as it starts to accrue when the loan is repaid. Another important point identified by T. Pulikas is the choice of payment date.
It sounds simple, but it is very important. It is important that this happens after you have received your salary, so that you do not face financial difficulties.
Interest rates are set individually Interest rates are set individually for each customer and depend on a number of circumstances. These include the amount and type of information the bank has on the customer, the credit history and the timeliness of repayment of all financial obligations.
Defaulting customers may not be granted credit at all or may be charged higher interest rates. Once the contract is signed, the mortgaged property must be insured, because if something happens, the bank will be left without collateral and the person will be left without a property. Then the sale and purchase contract is signed at the notary and the property is registered. If you have minor children, you must get permission from a court to mortgage your property. Only after all formal procedures have been completed will the bank release the loan. The final visit to the notary confirms the agreement with the seller.