What are the requirements for taking out a mortgage?

Lectura 4 min

Having a house of your own is one of the main goals for most people, as this is the essential key to forming a new family unit and providing it with the protection and stability needed. Of course, as with other personal goals, buying a home has its challenges, especially as it requires investing a significant sum of money, which is the primary obstacle for most people. Luckily, we have mortgages, which provide a legal solution to buying a property and paying off the full value of the property over the long term.

Of course, in order to qualify for a home mortgage, applicants need to meet a series of requirements that act as a guarantee to fulfil an agreement of such magnitude and importance. For this reason, it is valuable to know which conditions the buyer must fulfil, not only in order to get a mortgage that will allow them to enjoy their dream property, but also to find a suitable contract that meets their needs and capabilities. At the beginning of the process, the mortgage lender will positively assess the consolidated savings, the ideal level of income, employment stability, the solvent credit history and any other additional collateral or guarantees.

1. Have one third of the value of the property in savings

The first thing to know when you choose a mortgage is, generally, mortgage lenders do not lend the full value of the house, but thanks to their risk policies, they can fund up to 80% of the purchase. For this reason, the applicant must have at least the remaining 20% of the total cost of their investment.

There are fees associated with the buying and selling processes and creating the mortgage documentation which include taxes, property appraisal, legal costs and agency fees. These legal fees come to a total that varies between 10% and 15% of the cost of the property.

In summary, between the initial investment and the buying and selling documentation, the applicant should have approximately one third of the fixed value of the property. If, on the other hand, the investor has a good profile but does not have as much money saved, they can either choose lenders that offer larger loans or consider hiring a mortgage broker for more support in the negotiation.

 2. Earn a sufficient income to cover the fees

One of the conditions that mortgage lenders require for funding a property is that the buyer has an appropriate and recurring level of income, because this ensures they are guaranteed to be able to pay the mortgage. Generally, these lenders approve applications if the mortgage payments do not exceed 35% of the buyer’s net income, which is the maximum percentage suggested by the Bank of Spain for financial debt repayments.

A lot of the time, it’s likely that this condition will not be met, but there is always the option to share the investment with another title holder, which has additional benefits when it comes to creating the mortgage.

3. Having employment stability

This requirement complements the previous one, as having a permanent or indefinite job with a certain length of service will also act as a sign of confidence for the mortgage lender with regards to the timely and recurring payment of instalments. For those who are self-employed or business owners, sustained income must be demonstrated at for a minimum period covering the last two years.

The occupational field that the applicant works in is also taken into account during the assessment. Civil servants, as well as employees in the most prosperous and quickly developing sectors stand the best chance of easily getting a mortgage.

4. Having a solvent credit history

As it is a financial contract, mortgage lenders look at the applicant’s credit history. For this reason, if they want to get a mortgage, the best thing to do is to ensure that you have a solvent financial status.

One of the aspects considered for approving mortgages is whether the applicant has any current debts. If they do, the buyer must ensure that their total debt, at the time mortgage repayments are calculated, does not exceed 35% of their net income.

If, on the other hand, the applicant has financial deficits as a result of defaulting on another debt, this will result in the immediate rejection of the mortgage.

5. Showing additional collateral and guarantees

In the event that the buyer does not meet all of the necessary conditions for mortgage approval, they have the option to present other guarantees to the lender that may facilitate financing. One of these may be a joint or several guarantors whereby other people commit to repaying the mortgage instalments with their property as collateral.

The most important thing to know, with regards to this condition, is that there are risks which should not be underestimated. If a third party pledges its assets as a guarantee, there is a possibility that they may be seized if the buyer or the party responsible for paying the instalments does not pay them in a timely manner.Of course, among the conditions to apply for a mortgage, you must also collect a range of documents required for an application like this, among which include your national ID card (DNI), an up-to-date history of employment, your most recent income tax return, bank statements from the last few months, deeds of previous properties and the most recent paid utility bills, among other additional documents and supporting documents.

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