When you buy a home, your financial planning comes under scrutiny. Whether you are going to opt for a mortgage that covers 100% of the value of the property or a conventional 80% mortgage, it will be essential to have prior savings to meet certain payments .
The house is not built from the roof down, nor can it be bought without a savings base. There are certain expenses that you will have to cover even with a 100% mortgage. One of them is the payment of taxes. If the house is new, you will have to pay VAT, which represents 10% of the purchase value. In the case of second-hand homes, you will have to pay the Property Transfer Tax (ITP), which varies between 5% and 10% depending on the autonomous community and whether the home will be your habitual residence.
In addition, both for new and second-hand homes, you will have to pay the Tax on Legal Documents (AJD). In new homes, it applies to both the purchase and the mortgage, but in used homes it only applies to the sale. Although some mortgage expenses such as the appraisal of the home are covered by the financial institution, the opening commission and a copy of the deed will be your responsibility.
A fundamental aspect to bear in mind is that most mortgages do not finance 100% of the value of the property, but rather a percentage that usually ranges between 80% and 85% . Some entities can finance 100%, but this will depend on your financial solvency and the appraisal value of the property.
In short, you will need to have at least 10% of the value of the property saved to cover taxes and initial expenses. If the property costs 150,000 euros, you will need at least 15,000 euros just for these expenses.
What mortgage payment can I afford?
In order not to compromise your financial stability, it is recommended not to allocate more than 35%-40% of your monthly income to the mortgage, adding additional expenses such as insurance. To calculate this percentage, it is important to base it on your most stable income, without taking into account variable or sporadic income such as bonuses or commissions.
For example, if you have a monthly salary of 1,500 euros, your mortgage payment should not exceed 525-600 euros.
How to save for a down payment on a flat?
In order to save enough for a down payment, it is essential to create a realistic savings plan. Here are some key steps:
1. Determine the value of the house you want to buy : Once you are clear on how much you would like to spend, you can calculate the level of savings you need. If the apartment costs 200,000 euros, you will need to have between 20,000 and 60,000 euros saved, depending on the type of mortgage you get (100%, 95% or 80%).
2. Evaluate your current savings : Analyze how much you have already saved and whether you cover the necessary capital. If not, it is time to organize a savings plan.
3. Create a monthly savings budget : Set a monthly savings goal, which can be between 10% and 20% of your income. Start by identifying monthly expenses that you could reduce or eliminate, allocating that amount to housing savings.
4. Build a financial cushion: Don't just save up for the down payment on your home, also set aside part of your savings for unexpected expenses, such as repairs or insurance.
5. Long-term investments : Consider allocating part of your savings to interest-bearing savings accounts, deposits or investments in index funds or ETFs to generate returns. This will allow your savings to grow while you continue planning your purchase.
A practical example of savings
Emma wants to buy a house worth 150,000 euros with a conventional mortgage of 80%, but she only has 20,000 euros saved. She needs at least 45,000 euros (30,000 for the down payment and 15,000 for taxes and expenses). After reviewing her finances, Emma realizes that she can save 200 euros per month, of which she decides to allocate 150 euros to her long-term savings.
Instead of keeping the money in her regular savings account, Enma invests her savings in an investment fund that generates an annual return of 5%. Over the years, this return will allow her to reach her savings goal in less time.
This comprehensive approach will allow you to not only understand how much money you need to buy a home, but also how to effectively plan to get it.
