Things to Keep in Mind When Buying a Home
Steps to take before buying a home: After much thought and to decide if it is better to rent or buy a house, you have already decided. I want to buy a house! It is a moment of nerves and joy. But so that it is always and you do not end up regretting there are a series of steps that you must take before buying the house and a series of information that you must be clear about.
Things to consider when buying a home
Buying a home can be as simple as finding a flat and buying it. The problem with doing it like this is that it is easy for you to end up with a house that does not fill you and also paying much more for it. What should I know before buying a house? What to check before buying a flat? These are two common questions that generate many doubts.
Among the things that must be taken into account before buying a house is its state of charges, that is, knowing if the house that I am going to buy has debts or not, finding out the general expenses that you will have to face and even possible spills. In the following points you will see the keys to take into account when buying a flat.
When to buy a house
Before taking the step and buying a house, it is important to consider whether or not it is a good time to do so. To do this, we will have to assess different external factors related to the real estate market, but, without a doubt, the most important thing will be our economic and personal situation. Are we in a good moment and do we enjoy job stability? Do we have good economic conditions to take on a mortgage loan?
If the answer to these questions is affirmative, we will have to enter to assess other factors such as the price at which the home we want is and the prices that are considered in the real estate market in general. But, yes, it must be taken into account that prices can differ considerably between autonomous communities or between cities in the same region. That is, it will not be the same to buy a house in Madrid as in a small municipality, since prices will be much higher in the capital. For this reason, it will be very important to study the prices and analyze whether that same home could be bought a few months later for a lower price or not.
Likewise, it will be necessary to take into account the interests of the mortgages and, especially, the evolution of the Euribor and its forecasts. At present, this index, the most used to negotiate mortgage prices, is at historical lows, so financing the purchase of a home is, at the moment, cheaper than ever.
What type of home do you want
In the market you will be able to find homes under construction through cooperatives, new homes already completed or in the final stretch of the construction process and second-hand homes. Each type of house has its advantages and disadvantages, as well as some home purchase expenses that you should know.
In the case of opting for a new home without building, the key is to get the developer right. Review their history and promotions in which they have participated. If you have time, it may even be interesting to go see some of the ones that have already finished and ask the neighbors for finishes and qualities.
The same also applies to new homes already built. In both cases, you should know the costs of buying a new house versus a second-hand one. When acquiring a new apartment you will have to pay 10% VAT on the purchase value. If the house is of official protection that VAT will be only 4%.
The advantage of these houses is that there will be no renovations to be done for some time, with the savings that this entails. In addition, you enter a new community where all the neighbors start from scratch. To this must be added that in a flat under construction you can customize some elements during the work. On the contrary, in these cases the negotiation margin is usually narrower.
When buying a second-hand house you will not have to pay VAT, but you will have to pay the Property Transfer Tax or ITP. This tax depends on each autonomous community, although the average ranges between 6% and 8%.
Home buying process
The home buying process may be longer than we imagine and requires patience. But, in addition, it also requires different decisions and the analysis of our economic situation to know which house we can afford or in which bank we can find the best mortgage options.
What is your budget to buy a flat
One of the most common mistakes when looking for a flat to buy is doing it without knowing what house you can afford. Before opening Idealista, Fotocasa or Pisos.com you should know how much you can spend on your home. If you are like most Spaniards this reduces the stark question of how much money the bank is going to give you.
How much can you ask the mortgage bank
If the banks are clear about something, it is what they are willing to risk in each operation. To begin with, the bank will rarely give you a mortgage above 85% of the value of the house, to which you will have to add additional expenses (in the next section we list them).
In addition, the entities will also take into account your expenses and income. Except for exceptional cases, most will limit your debt capacity between 35% and 50% of your expenses, also depending on the value of the house. If you get a bargain it will be easier for them to get as close as possible.
In this sense, the most common formula to request more mortgage money is to extend the term of the loan. Before doing so, be careful and do the numbers because the total cost of the house can skyrocket.
For this whole process you may have doubts at some point, so we leave you here our 100% free tool to find a financial advisor to help you:
What is paid when buying a house
As a general rule, the bank will finance up to 80% of the value of the house without taking into account the expenses of deed, notary, registry, appraisal... The average cost of these expenses added to the purchase of the house is between 10% and 15%.
The entrance to the apartment will involve a significant outlay. Buying a house without entry is very complicated nowadays even if you get financing for buying the house. The reason is that the expenses for buying a house go beyond its price. In this article we list them all: how much a mortgage costs, all the expenses that you must take into account.
If you want to buy a house with no money, there are also mortgages that cover 100% of the operation, but they are no longer as common as years ago and require a strong bond. This is the only way to buy a home without savings. Of course, by doing so you will end up paying much more for it.
Before you start looking at a house, you should visit the bank to find out what mortgage they give you and how much money you have. It is easy for the entity to cover their backs by telling you that the loan will depend on the specific home. It is true that the house counts, and a lot, when granting the mortgage and the percentage to finance. However, it is also true that the bank can offer you a framework on which to operate.
In this sense, don't limit yourself to just one entity. The best formula to achieve the cheapest mortgage is to have at least three entities with which to negotiate and lobby. You'd be surprised how interested a bank can be in signing a mortgage with the right customer profile.
Later we will give you the keys to negotiate the mortgage with the bank and what you should look at in the mortgage loan so as not to end up paying more.
How much to spend at home
One thing is that the money that the bank lends you and quite another that you must take it. It is important that you measure your financial capacity and the necessary effort that you are going to make to buy the house.
Financial capacity can be measured by the number of years it will take to pay for the house with your income. The average in Spain is 7.3 years for a new house according to the Real Estate Effort Index of the Appraisal Society that you can consult here.
To this data is added the effort you are going to make to be an owner. The most common recommendation is that you should not allocate more than 40% of your income to pay for the house. In fact, the ideal is that this percentage is closer to 35%. The bank will also take this data into account when granting or not the mortgage.
And it is that to what you pay for mortgages you will have to add the rest of the expenses of the house and those of day to day. If the bank does not want something, it is that you have problems paying and that is why it will seek to cover its back by limiting the percentage of your income that will go to the mortgage.
If you are wondering what salary I can buy a house with, the answer is: with anyone. What happens is that your income will determine how much you can spend on the home. We leave you a tool to calculate the house that you could buy depending on the money that comes into the house, your savings, etc.
The all housing expenses
Each house is different and all have their peculiarities that translate into expenses. The best solution to avoid surprises and your budget going to waste is to ask about the maintenance costs of the home. These are the most important that you should know:
- Cost of supplies. How much is spent on heating? And in air conditioning? How you use both devices will play a role, but your previous bills will serve as a starting point.
- The IBI. The Real Estate Tax is unavoidable. The year in which you buy the home, it will be up to the owner to pay it at the beginning of the year, but then you will have to do it and you better know how much it amounts to. Here you can see when the IBI is paid and how much it costs.
- The community of neighbors. Imagine that you buy a house to discover later that you must add 250 euros of neighborhood community to the mortgage. With a tight budget it can be a real tragedy... Before making a decision, ask this type of information, since you will spend a lifetime paying these expenses.
- Boiler, air conditioning and plumbing, electricity. They may seem like a minor expense within the 150,000 euros that the house will cost, but knowing the state of these basic elements of the home will allow you to adjust the future budget a little more. In fact, in second-hand homes it can be a pressure weapon when negotiating.
- Home insurance. Homeowners insurance is an integral part of the mortgage negotiation and to find out if it is expensive or cheap, you can start by asking its owner. In addition, then you can make comparisons to see if what the entity offers you is expensive or cheap.
Tips before buying a second-hand home
Although when buying a house it is always advisable to carry out a series of checks before taking the step, this is especially relevant when it comes to a second-hand home. What to look for when buying a second-hand house ? In general, the most important thing will be to find out if that house has pending charges so as not to have problems, but, in addition, we will have to take into account other details.
Find out the condition of the home: Are there any pending charges?
You always have to check if the house is free of charges. In other words, check whether or not you have a mortgage, if there is a lien on it or if it weighs any additional debt such as unpaid community fees.
To check the status of the home you are going to buy and if there are pending charges, you can go to the Land Registry to request a Simple Informative Note. This document contains key legal information such as the following:
- Description of the house with the location, the type of house, the built and useful area, polygon, plot, cadastral reference and horizontal division. These are the basic data of the house.
- Ownership of the home. That is, whose house is actually together with its participation in possible portals or storage rooms.
- Charges such as mortgages and other debts. These charges weigh on the home and not on the owner, so if they are not paid, they would become yours.
Among the possible charges is the IBI. This tax is not always paid at the beginning of the year, but it is always up to the holder to pay it on January 1. To make sure it is paid, ask for proof of payment from previous years. In this case, the debt will not fall on the home, but on the owner at that time, although many municipalities choose to claim it from the new owner.
Certify who sells the house
The Simple Informative Note of the home will give you this information and it is important that you read it. For the sale to be effective, all owners must sign. In addition, it will help you avoid scams such as the seller and owner do not coincide.
Ask for all the information about the house
The property registry will give you a lot of information about the house, but not all. Ask the owner for a general plan of the house, but also of the electrical networks for water, gas and heating.
In the same way, you should also ask for a memory of qualities that will tell you the materials that were used for the construction, insulation terms, acoustics... In second-hand houses it is possible that this information has been thrown away.
What to look at in a mortgage
Once you have chosen the home, ask the owner for some time to negotiate with the bank. On many occasions they will ask you to leave a signal or deposit contract. It is important that you try to delay it until you close the negotiation of the loan with the bank and have your binding offer.
The best way to negotiate the mortgage is to have more than one offer on the table. That is why you must visit several entities and branches to find the best proposal. The entry into force of the new mortgage law has lessened the role of the office, since it eliminates the incentives for branches to sign new loans. However, in the factors to take into account for a mortgage, it is still advisable to visit more than one branch of the same bank.
What to look for when looking for a mortgage
The first question you must answer is whether you want a fixed rate or variable rate mortgage. In this article we make numbers and we explain the advantages of each type of loan: Fixed or variable rate mortgage, which one to choose.
With this in mind, when analyzing a mortgage to buy a home, try to focus on the whole and not on the immediate. This happens by not focusing on the monthly payment and instead focusing on the total you will pay for the house.
When you wonder what to take into account when requesting a mortgage, think that you are facing a long-term loan and the fee will make you think in the short term. A mortgage loan is made up of two variables: duration of the mortgage and interest rate. The fee is the result of both and especially the second, which is the one you can choose. The longer the loan, the less you pay each month. In return you will pay more interest for the house and in the end it will cost you more. For this reason, when evaluating which mortgage to choose, never lose sight of the global image, which is the total you will pay for the house.
As an example, for a mortgage of 150,000 euros at 30 years and an interest of 1.5%, you will pay 36,370 euros in interest to the bank. Reduce the term to 20 years and you will only give 23,719 euros. As you can see, paying before has its advantages. When doing your calculations, do not make the mistake of thinking that the Euribor will always be at current levels because it is easy not to know. Check here the evolution and the average of the Euribor in recent years.
From there, you will have to go into detail. The conditions to study in a mortgage go beyond the term and the interest rate. Points to consider about the loan also include associated products and other issues such as the repayment system.
Analyze associated products
The mortgage is the preferred product of the banks to increase the bond with the client. The translation is that when you sign your mortgage loan, the entity will also want you to hire an endless number of associated products, starting with the current account and continuing with life and home insurance and ending with pension plans and investment funds.
The first thing you should be clear about is that the bank cannot force you to contract any product beyond the checking account. The rest must be rewarded by improving the conditions of the loan. From there, your job will be to assess whether it is worth taking out the life insurance from the bank linked to the mortgage or looking for another on your own, and the same with life insurance and the rest of the products. In the case of life insurance, as a general rule they will be more expensive if they are linked to the mortgage and also belong to the bank, which often acts as a mere commission agent between the insurer and the client. Use one of the many insurance comparators on the market to see what prices you get on the free market.
If you want to know what to do with the pension plan that you have been offered, here we tell you how to assess it: Is the bank's pension plan worth it to pay less mortgage?
In any case, the new mortgage law requires entities to present a differentiated offer with and without added products. So you can see more clearly this point to take into account of the mortgage and make a better decision.
After the arrival of the Mortgage Law, the only cost that the client has to bear when signing a mortgage is the appraisal of the home. Most entities already have their own or third-party appraisal companies with which they work. However, the bank cannot impose an appraiser or notary. As a user, you have the right to choose who you want to value your apartment.
The cost of an appraisal varies from 90 euros to more than 450 euros depending on the home and who makes the appraisal. Each appraisal is valid for six months.
Bank appraisers tend to be somewhat more expensive, but they are also easier for the bank to accept without objection.
Deposit contract: essential as a house reservation
Once you have chosen the mortgage, you can reserve the house (as long as the seller has given you time, if not, you will have to take a risk). In every home purchase, a deposit contract is previously signed.
The deposit contract is money that you pay as an advance for the apartment you are going to buy. It is a contract that binds both parties, buyer and seller. The first agrees to acquire the home under the terms stipulated in the reservation and the second does the same to sell it.
The clearer everything is in this home reservation contract, the better. There are three things you should pay attention to : the penalties in case of non-compliance, the causes of return and the conditions of the purchase.
The most common penalty for not complying with the deposit contract is that you lose the signal. On the contrary, if it is the seller who backs down, he must return the signal multiplied by two. The big question at this point is how much should be left as a deposit on the floor. The answer is 10% of the value of the home.
At this point, it is convenient to differentiate between a deposit and a deposit contract. The down payment is a smaller amount, generally around 3,000 euros that is given as a temporary reservation of the house and that is usually returned. The money from the deposit contract is not returned unless otherwise indicated, as we have just seen. For this reason, it is important to make clear the reasons for return. The most recurrent is that this money will not be lost if the bank does not grant the mortgage.
Finally, the deposit contract will also stipulate the purchase price of the apartment and a summary of the conditions under which the operation will be carried out.
In this link you can download a model of a deposit contract for the purchase of a home.
Before signing the purchase of the house
With the signed deposit contract, all that remains is to close the home purchase and the mortgage. The most common is that everything is done on the same day and before a notary. How to prepare for the signing of the mortgage and the purchase of the house? Reviewing both contracts well.
What to look for in the home purchase contract
The sale contract is the one that stipulates the conditions of the purchase of the house. It must clearly state the price of the house and the method of payment. There the reference to the house will appear and the buyer and seller will be clearly identified. If you did your homework well, you should already know who the legal owner is and you just have to check that that person appears in the contract.
You should also review the part referring to the expenses of the sale and who assumes each one. That contract will include the expenses that you must pay as a buyer. Remember that by law the municipal capital gain corresponds to the selling party.
In the event of a home purchase with a mortgage, the public deed of the sale will also be required. That is precisely why everything is signed before a notary. In fact, it is advisable to make this public deed even without a mortgage involved.
The figure of the notary is key at this point, as it will attest to the transaction and the willingness of both parties to buy and sell, as well as the acceptance of the specific conditions. In reality, the notary should also attest that the aspects of the private document are in accordance with the law.
What to look for in the mortgage contract
And in the mortgage? What clauses should be reviewed? You should actually take the time to read the entire contract. After all, it is the most important purchase you will make in your entire life. If you are able to read and find out why a 4k television is really worth it or the technical conditions of your vacuum cleaner, you can also do it with the mortgage.
By law, the entity must send the complete contract seven days before the signing of the mortgage so that you can review it. The most important points to review have to do with abusive clauses such as the mortgage floor, as well as those related to commissions for early cancellation, subrogation or novation. Fortunately, the new Mortgage Law helps the buyer. Now you can go to the notary up to three days before signing to resolve any doubts about the loan. This visit is free.
In addition, the notary must ensure that there is no abusive clause in the mortgage and that both parties fully understand the document they are signing.
After signing the mortgage
The home buying process doesn't end with signing. With the contract in hand, you have to carry out four specific procedures. They are as follows:
- Pay taxes. If the house is new you will pay VAT. For a second hand house you will pay the Patrimonial Transfer Tax. You have 30 days from signing to pay the ITP. Before, the Tax on Documented Legal Acts was paid, but since June 2019 as a result of the new mortgage law, the bank must assume the payment of said tax.
- Register the house in the Property Registry. If you have bought the house with a mortgage, you must register it in the Property Registry. The most common is that it is the notary himself who sends a copy of the contract electronically.
- Change ownership of the cadastre
- Change household supplies.
With these procedures, you will have already finished the acquisition of your apartment! You will only have to enjoy it... and finish paying it if you took a mortgage. We hope we have been helpful!