Interested in a swanky apartment? Got your eyes on your wife’s favorite villa? Don’t have the cash to buy it? Well, then a mortgage is your only solution. That’s how most people do it anyway.
You can start with placing a request for a mortgage with your bank, after which you will be required to furnish all your financial details. The bank wants to know as much as possible to be able to process your request. The bank needs surety in some form that you will be able to pay them back, looking at your current financial and personal situation. At times, you will feel that you’re being put under the scanner but that’s just the way it is.
Well, all this could be a tedious process and that’s where I as an independent mortgage broker would step in.
But before that, if you want banks to lend you the money, they want details about what you need those finances for. Every bank has an audit process which stays pretty much the same for all individuals applying for a mortgage.
The bank’s audit can be classified into the following categories:
1) Objective creditworthiness
2) Personal creditworthiness
3) Object
4) Completeness of the documents
1) Objective creditworthiness
For starters, banks want to be able to figure out whether you can even afford the property or not.
Equity
You must have at least a 10% contribution to equity. It’s important for banks to know whether you want to contribute equity to your mortgage, the amount of which depends on the purchase price.
But why 10%?
Banks do not like to take risks. They will not finance more than the property price. Take into account that you will be spending 8-11% for additional costs and they want to be sure that you can cover these costs. While there are exceptions, they will also have to be justified really well.
What is Equity?
Equity can be shown to the bank in the form of account balances, home savings etc. It’s a win for you if it is available and is in an account with your name. The higher the equity you want to contribute the lower the borrowing rate. Lower the risk for the bank, the more it’ll reward you.
Income/expenditure accounting
Very important point and you must keep it in mind while applying for a mortgage is the income and expense ratio. Banks want to ensure that you have adequate income. Your credit rating/score will be taken into consideration. So for eg; If you earn 5,000 EUR and you spend 6,000 EUR your credit score will be worse than someone earning 2,500 EUR and spending 1,000 EUR
You’ll have to present your account statements. For employees, they’ll need to submit the last 3 pay slips, December statement of the previous year and the last tax assessment. Needless to say, there could be exceptions.
What if someone is on probation or on parental leave? Are shift allowances & bonuses paid?
Prepare for an interview. There would be questions that can catch you off guard. I always conduct interviews with the clients so that we have answers to all the questions that the banks can ask us. Through the income/expense calculation the banks want to figure out that you can afford monthly installments after deducting all costs. Banks set up a lump sum amount for the cost of living in the expenses. Well, food, fees, travel, clothing, everything has to be paid for in everyday life.
2) Personal creditworthiness
On the basis of numbers, it is challenging to assess personal creditworthiness. According to the legislator, “the ability and inclination of the consumer to service and return the loan” should be considered. But how do you ascertain the inclination?
For the past, your previous handling of payment obligations can be understood, so that becomes easy. Have you made payments on time? Has there been a default at your end? If the banks see a questionable history, then it’s very difficult to get a loan. However if your payment history is clean, then that would have a positive effect.
Looking to the future is much more difficult.
First impression could be the last impression. I always tell my clients to be organized and make sure the documentation is complete. Crumpled papers, Incomplete documentation does not really make a positive impression. You have to gain trust of the bank. The question you have to ask yourself is “Would you lend yourself the money?”
3) Property
Mortgage security should be provided by your property. The banks want to know the property as well as possible. Now, it’s very difficult to get to know about each property in each area. So there are some standardized methods by which a bank will come at a valuation of your property. If the banks come to a lower valuation, it may save you from a higher purchase price. Well, with those standardized methods the bank gets to know the state of the property, what needs to be paid attention to, do modernizations need to be carried out at a short notice?
The documents include drawings, calculations, official entries, pictures, etc.
4) Completeness of the documents
The first thing to note is that all requested documentation must be provided.
Every bank, by law, is required to obtain all documents. Best is to have all the documents ready so that there are no delays in the bank’s decision. Banks want to ensure they have an accurate picture of who their customer is. It could get tedious, but you need to invest time for your new property.
The documents you need also depend on the type of property you’re purchasing. For eg; there’s a declaration of division only for condominiums. You need the property layouts if you’re building a house.
Financing can be set up quickly depending on how soon one can complete the documentation. Set up a call with me and I’ll hand hold you through the entire process of documentation.
