The real estate crisis caused mortgages to plummet; however, several factors suggest that the contracting of these loans will rise in the coming years. Among other things, this rebound in the sector is due to low-interest rates and an improved economy. At the moment, the Euribor is at historical lows and, in addition, competition between entities has increased to improve the characteristics of loans.
However, requesting a mortgage is a very important step, since it is possibly the highest amount of credit you will ask for in your entire life. If you are one of those who are thinking about applying for a mortgage, follow these tips that will help you in the process.
1. Make sure you meet the requirements
When granting you a loan, banks take into account certain essential requirements about the applicant. Before requesting the mortgage, you must make sure that you meet the profile and that the bank will not reject your proposal. Some factors such as age can limit you since banks usually grant credit to people between 18 and 75 years old. In addition, another circumstance that the entities will take into account will be the income you have or the type of employment contract you have. You may have a better chance of getting the mortgage if you are indefinite than if you are a temporary worker. In addition, you should check if you are on official defaulters. Many entities can reject you directly if you are in one of them because they consider that you have a risk profile.
2. Prepare the necessary documentation
The bank will analyze all the information that you provide, so it is convenient to properly prepare all the documentation it requires and provide it with concepts such as the level of income you have along with the extra payments or annual bonuses. In addition, it is important to justify the periods in which you have not been working or have changed companies. Based on all the information you justify, the bank will decide whether or not you are a risk profile and the conditions that your credit will have. Normally, the bank will ask you, among other documentation, for your DNI and Tax Identification Number (NIF), working life, last payroll, last declaration of income and assets, annual and periodic VAT payments (only if you are self-employed), and receipts of payments on other loans you have.
3. Calculate the exact amount you need
Before requesting the mortgage, you should know what exact amount you need to pay for the house. For this, you must bear in mind that the purchase of a house carries other costs such as appraisal, notarial, or registration in the Property Registry. These types of extra charges will increase the final money your payout.
In addition, you must be aware that the vast majority of experts assure you that you should not ask the bank for more than 80% of the value of the property’s appraisal. To do this, you must have saved and available 20% of the price of the house. As a result, the financial condition will change. For its part, the bank does not usually lend 100% of the cost of the house and the loan does not usually exceed 80% of the value of the property, although this maximum may vary from one entity to another. On the other hand, the monthly mortgage payment should not exceed 40 or 50% of your monthly income, since you will find few entities that assume your risk profile in the event of a default.
4. Pay attention to the fine print
When you choose the mortgage you should look at something more than the advertising made by the bank and thoroughly examine the conditions of the mortgage. There will be no turning back after you sign it. For this, you can count on the help of a lawyer or real estate expert to guide you and advise you about certain abusive conditions whose application is illegal, such as some floor clauses that are not clearly informed to the user, since they set a minimum interest.
In addition, you should also review some concepts such as the extra expenses of additional products such as Home insurance. To request a mortgage, the law requires that the house have Home Insurance that covers claims such as fire. However, you are not obliged to link the mortgage with one of the entity’s policies, so you can compare insurance on your own and hire a product that is cheaper for you. On the other hand, when calculating the total of what you will pay for your loan, you have to take into account the commissions, the money that the bank will charge you for the study, opening the amortization or early cancellation of the mortgage.
5. Negotiate the conditions of your mortgage
Although the bank is the one that decides the conditions of the loan, you can try to negotiate terms of the mortgage that do not seem adequate to you. For example, you can demand the dation in payment, which consists of the delivery of the mortgaged property to the bank to put an end to the debt. In this way, in case of not being able to assume the monthly payment in the future, the bank would only keep the house and you would not have to continue paying the outstanding debt.
6. Choose a mortgage that suits your situation
The most widespread are fixed, variable, and fixed interest rate mortgages. The first one provides security because it keeps its interest rates unchanged, that is, throughout the duration of the loan, the installment to be paid will be the same since it is unaffected by shifts in benchmarks such as the Euribor. However, they tend to be more expensive because interest rates are higher since in this case, it is the bank that assumes the risks of interest rates rising.
On the other hand, the variable mortgage works the other way around than the fixed one, since it is the client who assumes the fluctuations of the Euribor. If this indicator is at low levels, the mortgage will be much cheaper. As for the mixed one, it combines a fixed-rate at the beginning of the loan that later becomes variable.
7. Compare mortgages before signing
The Association of users of banks, savings banks, and insurance in Canada indicates that it is advisable to compare mortgages before signing. In this way, you can find the best conditions or payment facilities for your loan.
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