What to take into account when requesting a mortgage

Taking out a mortgage is one of the most crucial financial decisions we make in life. It requires a significant financial effort, especially for those for whom buying a home depends on having a source of financing, that is, on the approval of a bank. Now, getting a yes from a bank is not the only issue we need to worry about. Before getting there, we have a long way to go that implies, among other things, having savings, enjoying job stability and financial solvency, evaluating different offers and knowing very well all those additional expenses that we will have to incur from the moment we decided to leave our rental apartment for a mortgaged home. If you are thinking of building your own home and you are considering asking for a mortgage, you cannot stop reading the main questions that you should take into account before applying. Take note and don’t miss anything!

We hear the word “mortgage” and it is normal to feel some fright. We cannot deny that it is an imposing term, since we are talking about a long-term financial commitment that we acquire with a bank. But is it very difficult to access it? Of course, there are a series of requirements that we must comply with. We explain the most important ones.

  1. You need to have money saved . Currently, it is very difficult to get a bank to agree to finance 100% of a mortgage. In general, the maximum granted is 80% of the appraised value , therefore, you will have to assume the rest, in addition to all the management expenses, notary, taxes, etc.
  2. Another requirement to apply for a mortgage is to have job stability and a positive outlook for your finances. For example, being a civil servant or a worker with a permanent contract can greatly facilitate the process, while having a temporary employment contract can reduce (although not always) your possibilities.
  3. The bank will take your credit history into account. It is not a secret to anyone! But it is convenient that you keep it in mind because an outstanding debt payable could take a toll on you when applying for a mortgage . Likewise, they positively value that you do not have other debts or loans to repay.

As for the documentation to present, we anticipate that you must provide the ID of the holders; last two payrolls; and the latest income statement, among others. Provide a policy of home at this point in the process, it will not be necessary. Of course, keep in mind that once the mortgage is granted, it will be mandatory to subscribe an insurance that covers the damages that may occur in the property.

Believing that we only have to assume a part of the sale value of the property is a serious mistake. Being clear about the expenses of acquiring a home is vital to avoid last minute surprises. We call this the formalization expenses which, since the new mortgage law came into force , have been reduced considerably.

Before the client was responsible for assuming the costs of notary, management, appraisal and even the Tax on Documented Legal Acts , however, currently it only takes care of the appraisal costs and the bank is the one that assumes the rest. It is possible to find a bank that also pays the amounts corresponding to the valuation of the property on the condition that the client has to accept the appraisal proposed by the financial institution.

We almost always forget the fine print and it is one of the most important issues when requesting a mortgage and formalizing the contract. The opening commission is one of them. This is a charge that you must assume and it is not a limited commission . This means that the bank is free to charge you whatever it deems appropriate, such as calculating a percentage of the mortgage amount or establishing a fixed amount for all customers.

On the other hand, we have the early repayment commissions . It is convenient that you pay special attention to what you will have to pay if you decide to repay the debt or part of it before the agreed time. So we have:

  • The withdrawal commission for variable and fixed mortgages that allows the bank to apply between 0.15% and 0.25%.
  • The interest risk commission for fixed mortgages whose limits are between 2% during the first 10 years and 1.5% from the eleventh year.

When evaluating your financing options, consider the possibility of contracting a mortgage without commissions. More and more banks are venturing to offer this type of product.

It seems that, in addition to the requirements to request a mortgage, we must also study a kind of glossary. The reality is that acquiring an economic commitment of this type implies that we are cautious when making decisions, but also that we are responsible when it comes to informing ourselves and educating ourselves from a financial point of view.

This, among other issues, implies understanding the differences between APR and TIN. On the one hand, the Nominal Interest Rate is the price we pay for the money received as a loan, while the Equivalent Annual Rate , in addition to encompassing the TIN itself, also takes into account the cancellation, amortization, and opening commissions. and the mortgage term . The APR does not include expenses related to notarial services, mortgage life insurance, etc.

Which one should you keep in mind when comparing different offers? Unquestionably, the APR, since this is the one that includes practically all the costs of the operation (including the TIN) and is the one that will allow you to get a much clearer idea of ​​the total cost of the mortgage .

Before, the only mortgages we could find in the banking market were variables . That is, those whose interest is calculated taking into account the Euribor (the interest rate applied to transactions between banks in Europe) and the differential applied by the bank itself.

Today, what other options do we have? The fixed mortgages in which unlike variables, interest does not suffer variations throughout the life of the loan is one of them. Of course, the interest on this type of mortgage loan is higher. The advantage over variable mortgages: you forget about the ups and downs of the Euribor that condition your fees.

Finally, we have the mixed mortgages that are a combination of the previous ones: during the first years of the repayment term, the client will enjoy a fixed interest rate with stable installments and during the rest of the years until the maturity of the debt it will be applied a variable interest rate.

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