It is possible for us to perceive the right time to buy a house by conducting a thorough analysis of our finances and other factors that influence this investment. With this analysis, we can determine the right time and provide some tips to facilitate the decision-making process.
According to statistics revealed by Eurostat, in the European Union, in 2020, about 70% of the population own their own homes. From these same data, we can see that buying a house is a European objective.
However, as with most objectives, it is not enough to just want it; we need to create strategies to consolidate this step until the day when it is the right time to buy a house.
By conducting a thorough analysis of each person's finances and certain parameters that involve this investment, it is possible to know the right time to buy a house. We present some steps, tips, and questions that you should consider to facilitate your decision.
For a large part of the population, buying a house is a high-value investment that directly impacts the family budget for many decades. Therefore, buying a house should not happen when the budget is weak.
Before starting and determining if it is the right time to take this step, begin by analyzing your budget. If you already have a budget that helps you manage your finances, it is time to review it. Check if all expenses and income are included and up-to-date in your budget.
After this analysis, let's look carefully at the budget and see if the finances are healthy or not. In other words, based on your income and expenses, do you have money left over to save? Does your budget include an emergency fund to deal with unexpected events? Do you have financial margin in case your expenses increase with the hiring of a home loan?
If all the answers are yes, this can be a positive indicator to take this step. Otherwise, it may be necessary to review your budget, make cuts and adjustments until your personal finances stabilize. Remember that it is better to postpone buying a house than to take this step and put your financial health at risk.
Since 2018, when bank rules changed, no institution can finance more than 90% of the value of the acquisition deed or the property appraisal. This means that no bank will finance 100% of the value of the property you want to buy unless it belongs to the bank itself.
Therefore, a future owner needs to have at least 10% or 20% of the property's value to make the down payment. If we are talking about a property of 100,000 euros, you need to have between 10,000 and 20,000 euros to cover the part that the bank will not finance.
However, we cannot forget that these values are added to the costs of property appraisal, taxes, and all procedural costs. In other words, a few more thousand euros. And if you do not have savings that can support these values, this is probably not the right time to buy a house. In these situations, the ideal is to create a savings strategy for the purchase of your house. Start by understanding what non-essential expenses can be cut, set goals, and figure out how you can increase and leverage your income.
By delaying this goal for a few years, when the right time comes to buy a house, you can do it without resorting to a loan to pay the down payment, and in this way, we can considerably reduce the risk of default and therefore indebtedness.
By taking this action, which we believe is essential, it helps us understand the current prices of the type of property we want, and consequently, the amount we need to borrow. As we have seen, property prices have been increasing - in 2021, house prices increased by 5.7%. This analysis can be a bit frustrating and may lead you to redefine your priorities.
However, we should always consider the average price per square meter in certain areas, the average value for the type of property you want, the price fluctuation between houses that need renovation and those that have been renovated, among others. This will help you evaluate the type of investment you can make.
We must always take into account that this type of evaluation should be adjusted to fit within your finances and the fundamental requirements that a property must have for you.
Let's imagine that it doesn't make sense for you to buy a property with less than three bedrooms, but in the area you want to buy, the asking price for that type of property is higher than what you want to spend or what you can borrow.
In these situations, you have the following options:
In short, a thorough market analysis will allow you to understand the current prices, whether it is the right time to buy a house, and what adjustments you may need to make to achieve your goal.
Before buying a house, there are two pieces of information you should pay attention to. The first is the maximum amount you can afford to pay for your mortgage installment. The second is your effort rate. And if you don't know what the effort rate is, it is the ratio between the financial installments a household has and its monthly income.
If you have never calculated your effort rate, here is a practical example to better understand these calculations.
Let's say your household consists of two people. Together, the monthly income is 2,000 euros, and they do not have any loans. In order for the effort rate not to exceed 30%, the monthly mortgage installment should not exceed 600.00 euros.
This means that when you calculate your effort rate, you will also know the maximum installment you can afford. However, calculate your fixed and variable expenses to ensure that this amount is really ideal for you.
Many people who consider buying a house are unaware of the various expenses they have to bear. The truth is that in addition to the monthly installment of the mortgage, including the cost of life insurance and multi-risk insurance, there are other significant costs.
For example, before buying a house, you will have expenses related to the process of your mortgage. These expenses include opening, evaluation, and formalization fees. And these expenses added to the deed can exceed €2,000.
In addition to these amounts, it is important not to forget that buying a house has associated taxes. Although the best-known tax is the Municipal Tax on Onerous Property Transfers, IMT, you will also have to pay Stamp Duty on the purchase and Stamp Duty on the Mortgage.
The stamp duty on the purchase has an applicable rate of 0.8%. In the purchase of a property worth €100,000, the stamp duty to be paid is €800, while the stamp duty on the mortgage for a loan exceeding 5 years is 0.6%.
As for the IMT, it varies according to the acquisition value or the taxable asset value (considering the highest value), and the applicable rate ranges from 1% to 8%, depending on the location of the property and its purpose.
That being said, it is essential to calculate all these expenses to understand whether this is the right time to buy a house, taking into account all these costs.
One of the most common mistakes made by first-time homebuyers is to find a property and then go to the bank to ask for a mortgage. However, this procedure may not be the most appropriate. After all, if you need a mortgage to buy your house, one of the first steps to take is to determine if you are eligible for this credit.
By going to a bank and requesting pre-approval of a mortgage, you will have a more concrete idea of some essential points that we have mentioned. From the maximum financing amount to the acquisition limit, your debt-to-income ratio, and, of course, whether you have the financial conditions for your credit to be approved.
Another thing to consider is that you should look for proposals beyond your usual bank. After all, if you are looking for the best financing conditions, you should go to several entities, thus being able to compare various proposals and choose the most advantageous option for you. You can also seek help from a credit intermediary, who will do this work for you.
If you cannot obtain pre-approval for your credit, it is clearly not the right time to buy a house. However, do not give up. All you need to do are small financial adjustments or create a new strategy to achieve this goal.
For example, the solution may be in finding a house with a lower value, reducing your debt-to-income ratio, improving your working conditions, or increasing your income. All of this can be done as long as you develop a plan and follow it carefully.
Last but not least, you should ask yourself whether you can afford an increase in expenses. Buying a house involves various expenses related to mortgage, taxes, and insurance. And expenses do not end here.
After acquiring your house, in addition to the monthly mortgage installment and associated insurances, you may have to pay condominium fees and IMI - Municipal Property Tax, if you are not exempt.