Buying an apartment is most likely one of the biggest purchases in your life. Before choosing a mortgage loan, it is good to be informed about what such a loan entails. Below, you can find out what a mortgage loan is, the steps to buying an apartment with a mortgage, and what other information you should request when going to the bank.
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A mortgage loan is a loan taken for the purpose of purchasing a property or land. Generally, it is taken for a period of 30 years, although there are shorter or longer terms available. The specific characteristic of a mortgage loan is that the loan is secured by the house or land itself. If you find yourself in a situation where you can no longer pay the installments, the lender has the right to take over the land or house and sell it to recover the money.
Another characteristic of a mortgage loan is the down payment. This can range from 15% to 35% of the purchase price. The remaining amount can be borrowed from the bank or a mortgage lender.
A special case is the no-down-payment mortgage loan, but this typically involves purchasing the house directly from the developer.
Mortgage Loan Expenses: Determine How Much You Can Afford to Pay Monthly
Since failing to pay installments results in the financial institution taking over your home, it is crucial to calculate your budget before taking out a mortgage loan. Generally, the monthly installment should not exceed 28-33% of your monthly income. This helps ensure that you can cover your current expenses and any unforeseen situations without worrying about missing a payment.
Unexpected events such as illness, alimony payments, or other regular expenses can lead to difficulties in paying the installment. Additionally, it is important to consider the possibility of an accident or even job loss.
When determining your affordable monthly payment, you should also factor in additional costs associated with your new home: utility bills, taxes, insurance, and maintenance expenses should not be overlooked.
Fixed or Variable Interest Rate Mortgage Loan?
When choosing a mortgage interest rate, consider the following aspects:
- A fixed-rate mortgage loan is recommended for more payment stability and to avoid unpredictable expenses due to interest rate increases, which often occur during high inflation periods. The main advantage is that you will always know exactly how much you need to pay.
- A variable-rate mortgage loan is recommended if you have stable and comfortable income and if the loan amount is not very large. It carries a higher degree of risk, depending on national or international economic conditions. Interest rates may increase or decrease.
Ultimately, the fixed interest rate is usually higher than the variable rate, but it remains unchanged throughout the loan term. While a variable interest rate may be advantageous at times, it can negatively impact you during periods of economic instability.
Mortgage Loan Calculator
With an online mortgage loan calculator, you can quickly simulate and compare different mortgage loans. You need to enter the loan amount (in local currency or euros) and the loan duration in months. This simple method will help you determine the down payment, total interest, monthly installment, and the total repayment amount. Additionally, mortgage loan simulations are free.
Where to Obtain a Mortgage Loan
You can apply for a mortgage loan directly from a bank or consult a mortgage broker. A broker is an independent financial advisor who can help you compare multiple mortgage options. Regardless of the choice, look for the most advantageous mortgage offers for you.
Before visiting a financial institution to apply for a mortgage loan, you should know the following:
- The type of mortgage loan you want
- The property you wish to purchase and its price
- The amount you want to borrow and the loan term
- The monthly installment you can afford
- The necessary requirements to obtain a mortgage loan
Required Documents for a Mortgage Loan
The main documents required for a mortgage loan include:
- Identity document
- Income certificate
- Marriage certificate (if applicable)
Documents required by the lender once the property/land is selected:
- Ownership document
- Registration of ownership rights
- Cadastral documentation
- Land Registry Extract
Steps to Getting a Mortgage Loan for Buying an Apartment
Approval for a mortgage loan can take anywhere from a few weeks to several months. Receiving the loan and subsequently purchasing the house generally involve the following steps:
1. Mortgage Pre-Approval
Before anything else, you need a mortgage pre-approval. If you have decided that you need your own apartment—whether because you are tired of paying rent equivalent to a mortgage installment, you want to move out of your parents’ house, or you need more space for your family—obtaining a mortgage loan can be a good choice. In this context, it is essential to determine the budget you need for the investment.
Mortgage pre-approval involves the bank reviewing your income and granting (or denying) approval based on this assessment. The specific requirements for mortgage approval vary by bank but typically include:
- Being employed on a permanent contract
- Having at least three months of tenure at your current job if your income is salary-based; other forms of income may also be considered
- Being able to pay a down payment of approximately 15% of the purchase price—some cases allow for a lower or no down payment, but additional guarantees are required
- Age requirements typically ranging between 18 and 65 years at the end of the loan term. For example, if you are 45 years old, you cannot take out a mortgage loan for more than 20 years.
To obtain a mortgage pre-approval, you only need your identity document. Income verification is conducted via the national tax authority, primarily when income is declared by an employer. Generally, pre-approval takes about two business days but may vary depending on the bank.
Pre-approval results in either acceptance or rejection from the bank. If approved, it is important to note that pre-approval has a validity period that typically ranges from 30 to 90 days, depending on the bank. The main advantage of pre-approval is that it provides a clear understanding of the amount you can afford when browsing real estate listings.
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