All the keys to choosing the best mortgage

After a long period in which the mortgage market remained closed, financial institutions have totally changed the scenario with a flood of offers in all modalities, to unprecedented levels, at competitive interest rates.

They are aimed at solvent clients with the economic potential to acquire a good number of financial products to which the banks link their concession. The new generation of mortgages does not stop adjusting its conditions to compete in a battlefield mined by the collapse of the interest rates.

The new environment is very favorable for those who want to buy a home. The photo of the new loans shows that at a fixed rate it is already possible to mortgage TAE interest rates (see table) between 2.8% and 3.7%, that at a variable rate there are half a dozen offers with a lower spread To 1% with respect to Euribor and that a new family of mixed mortgages with fixed interest rates has been born and in some cases have already fallen below the level of 3% APR.

If not for all pockets, there are mortgages for all tastes. What are the keys to success? What does the fine print say? To what extent are the binding requirements less attractive to the best offers?

A variable type. There is not one mortgage modality better than the other, but loans that fit or not to a certain profile. With the negative Euribor (month-on-month closed at -0.010%) variable-rate mortgages are a very attractive option, especially for those who do not need to mortgage themselves in excessively long terms, over 10 or 15 years.

The reason is that they can benefit from a long period of very low interest rates. Now, the spreads on the euribor of the best offers are between 0.90% and 0.99%, with terms that reach 30 years with the only exception of ING Direct, which reaches 40 years.

As a general rule, variable rate mortgages are better adjusted to those who have an expectation of growth and security of monthly income and who have a sufficient savings mattress that in the medium term would allow them to face a potential rise in the Euribor without a substantial reduction Of their standard of living.

A fixed type. They are the big bet of the financial sector to get returns in the mortgage business because their expectation is that rates will remain low for several years. For home buyers, it is a historic opportunity to borrow at competitive rates without having to worry about potential future Euribor rises.

The opening committee is key when it comes to making a decision. In the best offers ranges from 0% of BBVA or Abaca to 1%.

Mixed bookstores. The banks are revitalizing a modality that combines a fixed initial interest rate with a term that normally is 10 years (can reach 20 in some offers like the one of Banister) with a later variable type referenced to euribor that oscillates between the 0.90% and 1.49%. The greatest risk in this type of product is a possible strong monthly letter rise when the variable rate is activated.

In addition to the opening fee, attention should be paid to interest rate risk commissions, which, as in fixed rate mortgages, apply if the customer cancels the loan before maturity. In some cases, the penalty may reach 5%.

The conditions

Getting the best interest rates on the mortgage has a cost. Entities have launched the hunt and capture of the most solvent clients in the country. Today financial institutions impose important barriers to entry. The first has to do with the amount financed. In all modalities, the best offers on the market do not exceed 80% of the appraisal value for first housing, a percentage that is significantly reduced (to levels between 60% and 70%) in the case of the second home. But, of course, there are exceptions when the financial institutions themselves sell their own real estate. In these cases, it is usual to reach 100%.

Minimum incomes and linkage also make the difference between those who can access a credit or not. As a rule, the best mortgage proposals require monthly income between 2,000 and 3,500 dollars. The domiciliation of the payroll, the contracting of life insurance and savings and the use of cards of the entity are the most common obligations faced by those who are hiring a mortgage. But getting a ‘top’ type can force you to go further. Some entities also require contributions to pension plans that can reach 2,000 dollars per year and purchases of investment fund shares.

Clauses of a mortgage agreement

Mortgage loans are like night and day. The conditions that an entity offers to a customer do not have to be the same as those that it grants to another. What is more, the same bank can have several types of mortgages depending on the economic capacity of each client, whether it is the first or the second home and can even give away home insurance for a specific period in order to capture customers.

Now, if anything have, more or less, in common all mortgage loans is that they are made up of a set of clauses that can make asking for a loan more or less advantageous. The main clauses that a mortgage contract can collect are the following:

  • Ground clause.
  • Ceiling clause.
  • Payment in.
  • Expected maturity of the loan.
  • Type of interest.
  • Recruitment of additional services.

What are soil clauses?

The floor clause consists of the establishment, by the financial institution, of minimum interest rates on the mortgage. In these cases, users are the big losers if the variable rate they refer to, the Euribor in most mortgages, is below the limit fixed in the contract.

This clause has prevented thousands of homeowners who are paying a mortgage can benefit from the historical lows that the Euribor is registering in recent months. Thus, if a client has signed a mortgage to “Euribor + 1%” in August he should have paid an interest of 1.469% since that month closed at 0.469%. However, if the customer signed a 3% floor clause under contractual conditions, then this will be the interest he will have to face, despite the fact that the Euribor is considerably lower.

Ceiling clause

The ceiling clause is the opposite of the floor clause. What it sets is a maximum interest rate on mortgages. The existence of this condition is a prerequisite for a ground clause not to be declared void. What is guaranteed with a ceiling clause is that a consumer will not pay much more in the event that the Euribor is triggered. In this situation, the customer would benefit.

Payment in

Payment in payment consists of the delivery of the property to the bank with which the mortgage has been constituted to put an end to the debt. Article 140 of the Mortgage Law states that it may be agreed in “the deed of incorporation of the voluntary mortgage that the guaranteed obligation is only made effective on the mortgaged property.” That is, in case the debtor cannot face the dues only respond to the bank with the property on which the debt falls and not with all its assets, as established in Article 1.911 of the Civil Code.

Expected maturity of the loan

In case the contract does not contemplate the possibility of payment in payment, it is usual that among its clauses there is one that refers to the event of default by the customer. If this situation arises, the entity could declare the loan overdue and try to recover the outstanding amount and the unpaid debt through the sale of the property through a judicial or extrajudicial foreclosure of the mortgage.

Interest rates

The mortgage agreement also includes the interest rate, which is the price that the bank will charge the customer for having lent the money. The interest rate can be fixed, variable or mixed, depending on whether it changes over the life of the loan or if it is fixed.

Variable type: it is going to be modified at the end of the life of the mortgage credit in the dates that have been agreed in the contract. The rate will evolve (up or down) based on a benchmark, which in most cases is the Euribor, and which is usually added a constant differential.

Mixed type: during an initial period (6, 12 months …) a fixed interest rate is applied and after this time is changed to a variable rate.

Commissions

Another important point of a mortgage are clauses that refer to commissions. There are several: study, opening, modifying conditions and / or modality, compensation for amortization, subrogation…

The existence or not of these must appear in detail specified in the mortgage contract since the client must know at all times how much it is going to assume to him to change the bank mortgage or if to change the conditions is going to have some cost.

Hiring additional services

The law obliges all homeowners to have the home mortgaged to have home insurance but the European Mortgage Directive explicitly prohibits all entities that condition the granting of a loan to the contracting of certain products such as a Life policy and / Or Home, for example. What’s more, all those who have contracted any of these products with their bank can unlink them from their mortgage.

Now, another thing completely different, and that many banks usually do, is to link the loan to the contracting of Home, Life or Protection of Mortgage Loans insurance and thus offer a more favorable guarantees.

The entity must clarify in its clauses how the remaining conditions will be affected if it is decided not to subscribe certain products or if, once hired, it is decided not to renew them. The bank should advise the client of the risks to which it is exposed for failing to comply with this condition and, as a general rule, recalculate interest rates upwards and the customer will increase the amount of their monthly fee.

Track mortgage loans

When hiring a mortgage must pay attention to each of the clauses that comprise it, especially you have to be attentive to the clause floor, which can greatly hurt the mortgaged.

Expanding the mortgage, what does it consist of and what is it for

Mortgages can be extended over the repayment period to fit the needs of the client. You can request more money or a longer period of time to deal with debts.

Mortgage is one of the financial products better known.

Mortgages are loans for a significant amount of money and, therefore, they usually take quite a long time to be repaid. According to data from the Association of Property Registrars, the average duration of mortgages granted in 2014 was 269 months (22 years and 5 months). In this time many things can happen, and some of them force to modify the conditions of the mortgage.

Banks often allow mortgages to be extended if certain requirements are met, either to request more money or to make the payment conditions better, predictably with a decrease in fees. Mortgages, therefore, can be increased capital, amortization or both.

Capital increase

A housing reform, a regrouping of loans or other similar circumstances can make the mortgaged person need more money. Sometimes, and if the bank allows it, the extra amount may not be dedicated to the home, but may serve other purposes such as acquiring a vehicle, making a trip or coping with other improvised expenses.

To carry out this mechanism, the bank has to be sure that the mortgaged can cope with the new amount owed. This will be deducted from your income, property and the amount of other credits (if any). There is no single method used by all banks to know if a customer can pay, but it is usually tried that the total expenses derived from housing and the rest of the loans does not exceed 35% of the monthly income.

Extended repayment time

The other option to extend a mortgage is to request more time to deal with the payments. In this case, the amount to be owed remains the same as in the beginning but the payback time would increase.

The benefit to the client is to pay less for the repayment of their loan every month. Thus, if your financial situation has been complicated at any given time can make the amount of the installments adjust more to their possibilities.

Costs arising from extending the mortgage

Carrying out the mortgage extension involves a series of expenses for the applicant, which respond to both commissions from banks and to management and taxes. The most important are:

Commissions for novation: depends on the bank and the conditions under which the loan was signed. Typically, they range from 0.1% to 1% of total borrowed capital. Of course, each mortgage contract establishes its conditions in this respect.

Notary: The notary also supposes an expense in this process since it has to give faith of the changes in the writing. It assumes between 0.2% and 0.5% of the capital to be amortized.

Property registration: they have to modify the mortgage notation associated with the property. It costs about half as much as the notary.

Valuation and management: Banks often hire external agencies for these functions. They have to assess the property on which the mortgage is issued to determine their real value, as well as carry out the necessary procedures before the different institutions. Each agency and appraisal agency sets its rates so it will not depend on which one is chosen.

Taxes: When modifying a mortgage, the payment of the Tax on Documented Legal Acts, which taxes these procedures, must be paid. Its amount depends on the Autonomous Community in which it is made and round 0.5% of the capital due.

Flexible mortgage

Most banks have similar mortgages in terms of collections, differing mainly in the interest rate they apply and whether it is fixed or variable. However, there are some mortgages in the market that are distinguished from the others by varying some of the basic conditions. They are what are known as flexible mortgages.

Some mortgages offer flexibility when making payments against the traditional ones. They can be very useful in case of difficulties of payment over the years, but in return they are sometimes more expensive

Mortgages are one of the financial products that the Spanish know best. According to the National Statistics Institute (INE), 28.5% of US families live in a building that is subject to a mortgage, approximately 5.15 million.

Mortgage is a complex financial product, a loan of a large amount of money for which banks demand a large amount of payment guarantees, in addition to requiring a series of payments. The most common: commissions of opening, deferral, subrogation, insurance and, of course, interest.

The term “flexible mortgage” can sometimes serve as a commercial claim, but is not a product in itself, but serves to refer to products that change some of the traditional elements of the mortgage. These are the most common flexible mortgages.

Balloon mortgages (with deferred capital)

Deferred capital mortgages are those that allow you to defer a portion of the loan until the end, instead of financing the full amount in monthly installments. In this way you can pay less each month, postponing a final payment that, when the time comes, can be faced in one way or another.

It is an interesting option if you know that in the future you will have an economic capacity more relaxed than at the time of requesting the loan, so you can save to pay this last installment or plan to sell the home. When the time comes, since most of the debt will be amortized, it will not be difficult to refinance this final installment.

Mortgage with flexible payments

There are several types of mortgages with flexible payments in the market, but they respond to the same scheme: to be able to defer payment of one or more installments in case of need, without entering into delinquency. It is a very useful tool especially in extraordinary circumstances like the time to face an unexpected expense or see altered source of income in some way.

The type and characteristics of the postponement depend on each particular product. One of the most common formulas is to defer payment of one of every 12 installments (one per year), to a maximum number of times throughout the life of the mortgage.

Mortgage with capital shortage

The lack of capital is the period of the mortgage in which only interest is paid, while the remaining capital to be amortized remains unchanged. During these periods, the fee to be paid is considerably lower, since the debt is not being repaid.

Some mortgages are flexible with this tool, and allow you to apply longer or shorter periods of capital deficiency, at certain times or leaving it to the mortgagee. It is a good tool to deal with complicated periods in which there are less income, but it has a clear double edge: during the months that are paid less you can avoid the default, but do not pay off the outstanding debt.

Choosing the right mortgage

There is no perfect mortgage. When it comes to hiring one you have to take into account a lot of factors, from the risk you want to take or the capital to finance up to the economic situation of each one. In addition, it must be taken into account that they are contracted in the very long term, and it is easy to last more than 30 years. That is why it is something that we must meditate carefully, because we will have to live a good part of life with it.

Flexible mortgages offer some advantages over traditional mortgages, especially in the event of unforeseen developments over the years. In return, they also pose some disadvantages. And these facilities often involve a higher interest.

How much pay the bank for a mortgage

To determine how much money you will pay the bank for a mortgage, an insurer will assess your debt to income ratio, the value of the property and your history of credit. The lending bank will also want to abide by the three Cs of credit, capacity, capital and character, demonstrating your ability to repay loans, sufficient assets to repay the loan in the absence of income and your payment history accounts as shown in your credit report.

LTV ratio

The loan to value (LTV for short) is a critical consideration in the decision of a bank not only to lend money, but also to decide how much you pay for the mortgage. The LTV ratio is expressed as a percentage and represents the connection between the appraisal of the property and the total amount of required mortgage loan.

If you are making an advance payment of US $ 26,000 for a household with $ 130,000 US price, the total required loan is $ 104,000 US. The LTV is calculated by dividing the mortgage amount (US $ 104,000) between the estimated market value (US $ 140,000), and multiplying the result by 100, getting a result of 74%.

More about relationships LTV

Most lenders are comfortable with LTV ratios less than 80%, which means they are willing to lend up to 80% of the required amount. Some lenders may be willing to offer up to 90% or 100% loan if you represent a low risk and have good credit history, but this might require you purchase private mortgage insurance.

Debt to income ratio

It is understood that lenders are more concerned about your ability to repay the mortgage loan. Your debt to income ratio (total income compared against your total expenses) has great weight in deciding the amount of money the bank will lend you for the mortgage. There are two types of debt-income ratios examine the lender, the front and rear.

Front relationship

The frontal relationship is sometimes called housing costs, it shows how much money before taxes would be required to make payment of your mortgage. Typically, banks prefer that the total monthly payment on your mortgage (including interest, capital and insurance) does not exceed 28% or 29% of your gross monthly income.

For example, if your gross annual income is US $ 70,000, you could calculate your front ratio multiplying that amount by 0.28 or 0.29 (depending on the lender) to arrive at an approximate figure of US $ 19.600, which will be divided between 12 months to calculate the desired monthly mortgage payment.

Subsequent relationship

The subsequent relationship, or ratio of total debt to revenue ratio shows how much of your monthly income before taxes is required to cover your monthly debt obligations, including mortgage payments, loans for car maintenance partner and children, student loans and credit card accounts.

For most lenders, your monthly debt obligations should not exceed 36% or 41% of your gross monthly income. If the bank allows a limit of 39%, you can calculate your back ratio by multiplying your annual salary (US $ 70,000) by 0.39 and divide by 12 months to arrive at a figure of US $ 2,275, which represents the acceptable amount of debt to income ratio.

How to compare mortgages

When looking for a mortgage, sometimes it is not enough to use an online mortgage comparator, or to ask the bank or the typical friend who knows about finances. To make sure we do it right, we need to know how to compare mortgages, and for that we need to know the key points to look at.

What to look for to compare mortgages

If we want to compare mortgages in the most effective way, we will have to look at the following points:

Interest Rate: By means of which the mortgage rate is calculated, so it is probably the first thing to look at. Of course, we must watch, since the interest that the bank gives us may not be quite real. We should look at the following:

  • Is the mortgage fixed or variable? If it is fixed interest, the type the bank gives us is immutable. However, the most common is that it is variable
  • If the mortgage is variable we will offer a differential that is added to the Euribor or IRPH. For example: Euribor + 0.59%. Logically, the lower the differential, the better
  • Do you have an initial fixed interest rate? Some mortgages offer a fixed interest rate during the first few months or years, which then change to variable. A low initial fixed interest usually hides a high variable, and vice versa. So you do not have to get carried away by one of them, and make calculations with the two
  • Does soil interest? It is important to note that it does not have a floor clause , or that it does not exceed 2.50%, as it would not allow us to enjoy the lowering of the Euribor

Mortgage fee: You have to go down with a lot of lead when you want to sell us a mortgage by talking about the fee. The share is the most variable point of the mortgage loan, since it changes according to the Euribor and other factors. For example, if you talk about a monthly fee of 300 €, but it is a quota with capital shortage and calculated with a low Euribor, the next year we can find a 600 or 700 $. We have to make bullish calculations to make sure we can pay the quota in the worst possible conditions.

Percentage of funding: It is another of the determining factors, since according to our financing needs we can be out of some offers. Most mortgages fund up to 80% of the value of the property, so if we need more money we will have to search between the floors of banks or young mortgages.

Commissions: They are one of the most negotiable points with the bank. The most common are the opening commission, the commission for early cancellation (total or partial), the novation commission and the subrogation commission. A common opening fee ranges from 0.50% to 1%, which represents a cost of between 1,000 and 2,000 $ for a mortgage of 200,000 $. If we can find one without commissions, we can save a good pinch.

Related products: We do not tire of repeating the effect they have on the total cost of the mortgage. These are links, such as domicile payroll and receipts or insurance and pension plans, which (1) are either necessary to open the mortgage (2) or allow us to lower the spread. Always ask the price of these products and make accounts including them, since they are usually quite expensive.

Flexibility: Some mortgages offer more flexibility in repayment than others. We refer to periods of shortage, deferment of quotas and even free repayment. If, by our type of work (a commission, perhaps) we are interested in this type of mortgages, we should look for among the best mortgages.

These would be the main points that we should look at when comparing mortgages. Although we must never forget one general, the most important: the small print. Nothing else works if we have not read the fine print and have been given an abusive clause.

If we read and, above all, understand all the information about each mortgage, we can compare with knowledge of the cause.

How to reduce mortgage payments without refinancing debt

There are several ways to reduce the mortgage payments and keep cash in your pocket. Normally, you would need to refinance debt that the rate is lower. However, this process is expensive and some do not have the money. In some cases, lenders may be willing to reduce the amount of debt without refinancing.

  1. Learn how you can reduce mortgage payments without refinancing the debt. (Image: Housing, Mortgage, Foreclosure Real Estate concept or image by Kathy Burns-Milliard from Fotolia.com)
  2. Document your financial difficulties. In order to reduce mortgage payments without having to refinance the debt, the lender can restructure the loan. However, not everyone qualifies for this benefit. Before the application is approved, the entities will review your financial situation and determine whether or not you qualify for help. Some legitimate reasons include loss of employment, illness, injury or disability. You must keep copies of the accounting records, including pay stubs, bank statements, bills, unemployment compensation.
  3. It acts immediately. Instead of waiting for the situation you out of your hands, you should contact the mortgage company as soon as you detect signs of potential problems. The reduction process payments without refinancing is long and can take weeks to get approval and finalize the paperwork.
  4. Requests a loan modification. One type of restructuring is the mortgage modification, whereby the lender agrees to reduce the interest rate or extend the loan term to reduce the amount of payments. The entity may suggest this alternative. If you do not, you can request it.
  5. It presents a proposal. You can ask the bank to convert the interest or adjustable rate into a fixed, or you can request a loan extension fee. In some cases, an entity may temporarily suspend payments for a specific period of time.
    Negotiate with the lender; some may not accept the proposal. Organized a meeting to discuss possible options.

Tips & Warnings

  • If you meet certain conditions, owe more money than the value of the property or have a debt exceeding 31% of your monthly gross income, you may qualify for a loan modification in accordance with the program of the federal government of the United States America Making Home Affordable.

Mortgage bridge

With a bridge mortgage you can join 2 mortgage loans in use only until the house is sold.

The fees payable by the user are less than 2 mortgages and gives the user a time to sell the house that already had mortgaged.

Buying a home is a great decision. The mortgage payments, the costs associated with it and the related products are expenses that must be counted when choosing the house and the loan that is needed. When you buy a house you choose the one that fits the needs of the future owner. It is possible that at the time of acquiring it only two rooms are needed, or a particular area of ​​the city is preferred, but later a larger house is required or in another area or locality. What if, with the passage of time, but still having part of the mortgage, you decide to buy another home? Is it necessary to sell the first to be able to buy the next one? The answer is “No”. To solve these crossroads exist the bridge mortgages.

Buying a home while you are paying for another

Through a mortgage loan a credit institution lends the user an amount of money in exchange for it to be returned in the long term through installments along with interest. In the case of non-payment of the mortgage, the bank can keep that address in order to recover the amount that is pending collection.

When buying a second home when you are still paying for another, there are 3 options:

  • Wait to sell one to buy the other: it may mean “losing” the one you want to acquire because the time needed to sell a home can be lengthened.
  • Request a new mortgage: it would face the payment of 2 mortgages and it is common to find difficulties when an entity grants the client a mortgage having another in force. Banks usually request that the user have a minimum of 20% of the purchase price and another 10% for expenses, and this is dedicated to the purchase of the first home, so it will require a very high income to achieve a second.
  • Hiring a bridge mortgage : this way it is not necessary to sell the mortgaged home first, since two guarantees are acquired in a single loan: the one of the house that is already being paid and the one that is wanted to buy. This gives a term of between 2 and 5 years to sell the current house.

How does a bridge mortgage work?

With this type of mortgage loans the same entity grants a single client 2 mortgages (in a single) until he sells the first home. Until that happens, the user can pay a reduced fee that equals the interest of the total outstanding capital through quotas that, in many cases, can be modulated according to the situation of the interested party. Once sold the part of the loan that corresponds to the old house is canceled and the traditional mortgage for the new one is formalized, that begins to be paid with normality.

In short, the bank anticipates the money necessary for the acquisition and agrees to wait a certain time until the client sells his house.

How long does it take to sell the house?

These products usually have a grace period ranging from 6 months to 5 years (depending on the entity) in which the only payment that the mortgaged have to pay is that of the expenses derived from the loan, that is, That only interest on the loan is paid . Therefore, the time indicated to sell the house will be the one that is fixed as lack, since in the case of not having disposed of the property at the end of that period the client will have to face the payment of the common shares of the mortgage, Which will be higher than the one you had at the beginning to be the much borrowed amount. However, it must be taken into account that some entities do not have this lack.

How is the mortgage payment guaranteed?

The guarantee that the bank obtains that the loan will be paid is double with a bridge mortgage, since although the total increases and therefore the risk of default is higher, the guarantee against insolvency is in the 2 properties of which the client has.

What happens if the first home is not sold?

As we say, bridge mortgages are hired to acquire a second home while trying to sell the first, but what if this is not achieved? In the event that the grace period expires, in which only the expenses of the mortgage are paid and the house is not sold, the client must begin to pay the amount that the bank financed from the beginning. That is, after that period of time you have to start paying the normal mortgage payments even if the property has not been sold.

Advantages and disadvantages

The advantage of getting a bridge mortgage rather than 2 different mortgages is that you do not need to sell the home in a hurry. In addition, the fee for the loan is not as high as if they had 2, since you can pay less while the first is sold and then the mortgage is adjusted to the capital pending payment of the second.

The other side of the coin is the drawbacks, and because it is an operation that carries more risk for the entity, to grant these home exchange loans usually require a client profile with greater solvency than for a traditional one.

A home change loan

As an example, if the second mortgage is for a dwelling on a flat, the bridge loan will take into account the amount that adds the entry required for its purchase and the necessary payments in addition to the outstanding amount of the previous one. However, in the case of an already built house, the mortgage will be set up according to the sum of the outstanding amount of the house for sale and 100% of the cost of the purchase (unless the client has money in Effective to decrease it).

Buy the home you need

When buying a home you have to think carefully about the requirements you must meet: number of rooms, parking space, lift, bathrooms, kitchen size, and the area where you are … But once you find the perfect house it is time to pay. Analyze the commissions, clauses, requirements and get with your ideal home.

Mortgage for second home

The requirements to obtain a mortgage for a second home are stricter than to obtain one destined to finance the first residence.

The mortgage for second home usually finances between 60 and 70% of its value.

The bank assumes greater risk by granting mortgages intended for the purchase of an unusual home.

However, having a second home in property is not cheap, but rather a high expense. In fact, according to a recent analysis by the Organization of Consumers and Users (OCU), maintaining a second home on the Spanish coast costs on average 1,791 dollars per year.

In addition to the maintenance costs, a second residence means, in the vast majority of cases, ask the bank for a second mortgage to finance its purchase. These mortgages usually have fairly strict requirements and conditions, something is due in large part to be a property not intended for the habitual residence.

Increased risk, tighter requirements

It is not new that for an entity to grant a mortgage is necessary to meet a number of requirements and meet conditions that, in many cases, are not available to everyone. These requirements are much more stringent if the home to be acquired is not intended to be the primary home of the mortgaged or his family, but their purposes are vacation or second home. This is due in the first place to the fact that the client is at greater risk of not paying because it is not a necessity for him because it is not his main home. Therefore, if necessary, you will not pay the mortgage on your house on the beach before your usual home, for example. On the other hand.

Less funded amount

The first thing to consider before buying a second home is that the financing provided by the bank will be lower than the one you would give in the case of a main house. At present, the financing that most entities provide in the case of the first dwelling corresponds to 80% of the appraisal value of the dwelling. In the case of the second, the most common is that financing is between 60 and 70% of the value of housing.

Major savings

That the bank lends less money to the client means that the client must have more money saved to be able to contract the mortgage. In the case of the second home, it is imperative that the prospective buyer has sufficient savings to assume between 30 and 40% of the value of the home, which will be the amount that will have to be paid to the bank as an “entrance”.

High and stable income

Just as institutions often require greater savings to acquire a second home, the client must also have stable and high income so that the bank can agree to lend the money. If in the case of the first dwelling, the monthly income is around 2,000 dollars, for the second this amount will have to be around 500 or 1,000 dollars higher. On the other hand, the borrowing entity will also require the client to provide guarantees such as having an indefinite job in which it can demonstrate some stability and seniority. In addition, other essential requirements are to keep abreast of payments and invoices, not having a very high level of indebtedness or not appear in any file of defaulters, as happens when any mortgage is requested.

Finding the best mortgage

In addition to imposing high requirements, banks often guard their backs against a major risk with high interest rates on their mortgages, whether at fixed, variable, or mixed rates. That is why to find the most suitable for each person is necessary to compare different products and entities.

Mortgage requirements, things to keep in mind

When embarking on the purchase of a home, do we know everything involved in making such a decision? Can we meet with surprises and expenses that we did not expect? Before making such an important decision it is best to be informed and take into account all those expenses associated to be able to calculate a real budget. Among these additional expenses are elements we often hear heard of as commissions, related products, insurance, interest rate or floor clause? But do we really know what they are?

Expenses and taxes

The first thing to think about is that banks grant up to 80% of the appraised value of the property that we want to acquire. The rest we have to pay as initial payment, to which we must add the expenses derived from the processing of the mortgage and the purchase of the house (commissions, taxes, etc.). Between notary expenses, taxes, and other efforts we can pay up to 10% more.

In addition, it is important to know that there are a series of procedures that must be paid when applying for a mortgage regardless of whether or not we are granted. For example, the appraisal is mandatory, which has a validity of 6 months. It is also necessary to ask for verification of ownership of the property and if it is free of charges such as unpaid taxes.

The 5 things to keep in mind before you apply for a mortgage The 5 things to keep in mind before you apply for a mortgage

The purchase of a home also generates taxes, and these vary greatly depending on factors. For example, what is paid for a new home is not the same as for a second-hand home. VAT is only paid when it is new and purchased directly from the developer (10% or 4% if it is an Official Protection Housing or VPO). If it is a used home then we will have to pay the Transfer Tax. It assumes between 5 and 8% of the price, depending on the autonomous community, if you are a large family, you can prove a handicap or if you are under 32, among other factors.

To complete the purchase must be signed before a notary and register both the mortgage and the deed of the house in the Registry. After that, it is mandatory to pay the Tax of Documented Legal Acts, which is between 0.1 and 1.5% of the total mortgage liability (that is, the sum of the total loan, plus expenses, interest, etc.) depending Of the conditions and the autonomous community. These procedures are usually entrusted to a manager. If we are interested in a VPO we are in luck, since they have a reduced price for this type of expenses.

Finally, we will usually have to pay the manager, who is responsible for the registration of the property and the tax settlement. This expense depends on the manager himself, so it is convenient to ask and compare different options. Generally, these services cost between $150 and 300.

Now that we have located the expenses that can appear and thus avoid surprises, we will inquire about different concepts of the product itself.

Energy certification

It is a document that makes it possible to assess and compare the energy efficiency of housing as an added factor for purchasing and / or rental decisions. In this certificate is specified by means of a scale that goes from A to G, the emission level of C0 2 in comparison with the dimensions of the building. From 2013, the homes for sale or rent in Spain must have this certificate.

There are special cases, such as the Triodes Mortgage, in which the interest rate is guided by the Euribor, but the percentage added (differential) is linked to the energy certification of the home. The more energy-efficient the property, the better conditions are obtained. The improvement of energy efficiency also entails great economic savings in domestic economies: the difference in expenditure on heating, cooling and hot water between a dwelling of about 100 m² of energy category A and another category G can be up to $2011.63 a year. Among the improvement recommendations to increase the energy efficiency of the building are measures as simple as improving the sealing of windows or installing awnings.

Related products

Normally when we ask for a mortgage we will have to contract different additional products. These products are usually the contracting of life or multi-risk insurance, credit cards or domicile payroll in the bank, among others. In this sense, we must assess the cost of each of these products that we are offered and that can sometimes make a mortgage that seems to have the best conditions a priori and we end up getting more expensive.

In short, when buying a home we not only have to take into account the amount of the loan and the installments to pay. It is very important to take into account all the other associated expenses that we are going to find ourselves and also to remember the energy certification and its implication in the care of the environment and also in the economic saving that can mean. Making a budget with all these data and including possible contingencies can help us a lot.