Most of us need to borrow money to buy a condominium or villa. But how big a loan do you actually get? It depends on a number of different factors. Here we find out what the bank weighs into the calculation to determine how much you can borrow for your accommodation.
The mortgage is a loan with collateral in the home. This means that if you do not repay the loan according to the plan that you have agreed with the bank, you may end up for a forced sale of the home to get the bank back its money. The bank’s relatively low risk-taking makes the mortgage rate lower than the interest rate on other loan types.
How much can be borrowed for housing?
Previously, it was possible to borrow up to 90-100% of the value of the home. In cases where the bank lends 100% of the value of the home and the market value would go down, the borrower would risk lacking collateral for part of the loan. In addition, the borrower would have debt remaining even though the home was sold.
To avoid such situations, Good Credit introduced the mortgage ceiling in 2010, which means that you can now only mortgage the housing to a maximum of 85% of the value. The remaining part, 15%, you have to pay yourself with the help of a cash deposit. You can save the investment yourself, but you can also take a private loan to get it together.
What determines how big a loan I get?
The banks mainly look at the points that are listed below. By looking through your personal finances, the bank can calculate your disposable income. This is what remains every month after ongoing fixed expenses, but also food expenses, for example, have been deducted.
Your income – There is often also a limit on how much loan you can take based on your income, eg. six times your annual income. If you were to earn USD 350,000 a year, you would then be able to borrow at most USD 2,100,000. Of course, how much you earn is a very important factor for the bank when they control your personal finances.
Your Expenses – Your recurring living expenses affect how much money you have to move around. Low expenses are, of course, always preferred from the bank’s point of view.
Other loans – Your current loan also plays a role. If you have a loan on the car, student debt or other loans, it is weighed into the calculation.
Price and expenses for the home – How much the home costs is important for how much the cost of the loan is per month. It also matters how much you can only borrow up to 85% of the value of the home.
How to cope with a rate hike – The bank also expects how you would cope with borrowing costs should interest rates rise. It is not enough for your finances to manage a loan with today’s low-interest rates, if interest rates rise, you should not have to sell the property directly and move. The bank, therefore, needs to take some steps in its calculations if interest rates rise.
How can I improve my opportunities?
By taking the help of a loan calculator you can immediately see what has an impact on how much you can borrow. If you have a co-applicant, maybe a partner or spouse, then the opportunities for a higher loan are often improved, you can apply with two-income instead of one.
How many small loans and credits you have also recorded. It is therefore smart to gather all these into a larger private loan. The monthly cost decreases and in the bank’s eyes, it looks better with a loan instead of many different ones. E-Money is happy to help you if you want to collect your existing loans.
Borrow money with E-Money
When you take out a mortgage, it is always smart to compare what you can get for interest rates and terms at the various banks. You should also do this if you are going to take a private loan or a renovation loan. All banks specialize in different types of customers. It is therefore not possible to say that one bank is better than another when it comes to loans. This is why it is important to compare different loan offers to find which bank suits you best!
If you as a private individual go to several different banks to compare the terms, they each take credit information on you. This affects your credit rating and can impair your ability to get a really low-interest rate.
If you choose to compare with E-Money, only one credit report is made. The service is completely free of charge and you do not commit to anything when you make a comparison. Instead, E-Money gets paid directly by the bank or lender when we help them get a new satisfied customer.