A mortgage is usually the largest financial commitment we make in our lives. When we do it for the first time, we are accompanied by a lot of uncertainty and questions. To make a good decision, you need to understand issues such as credit parameters, comparing offers from various banks, and “Flat for young people” programs.
Thanks to this, we will know if we can take advantage of government support, as well as how to cover the topic of logistics and necessary preparations. Today, we encourage you to analyze a few preliminary questions that should be asked.
Are you ready for such a commitment?
Do you run a household budget? Are you fully aware of your monthly revenues and expenses, and you are also familiar with the annual financial plan? Have you already accumulated a financial security cushion of at least six times the monthly cost to deal with your obligations in the event of temporary problems? Do you manage your debts, or pay them according to a rational schedule? Can you save and you have savings?
If you answer ‘yes’ to all your questions, you can actually start thinking about taking a mortgage. However, if you know the above concepts only from theory, stop and think not to get into trouble. Here, here and here you will find the necessary tips on the household budget, debt management, and financial security cushion.
A mortgage is not an abstraction or a small debt, the repayment of which you can base on the statement “somehow it will be.” This is a real and significant financial burden. If you want to deal with it well, you must have the basics of financial discipline.
Otherwise, repayment of the loan can not only be a pain for you but also sabotage the implementation of any life plans. You should be able to afford a mortgage – you need to calculate everything in your personal finances. This requires prior preparation.
What can you afford
One of the main elements of these preparations is the estimated amount of the installment – after all, it depends on what property we can buy.
In 2014, recommendation S of the Polish Financial Supervision Authority came into force, according to which the maximum amount of all customer credit obligations should not exceed 42% of net income. According to KNF experts, this is the maximum safe level of debt in a household.
However, we recommend even greater caution. The installment should be determined after an in-depth analysis of the household budget – revenues and expenses. The costs associated with maintaining an apartment are not abstract – you are able to sit down and write them in a spreadsheet.
Before you decide on a loan, do this simulation – what will your budget look like if you have your own apartment? What expenses do you need to include? What shifts can you make to save more credit? Don’t be hurray optimist. Remember that repayment is a necessary expense, but not very pleasant – in addition, you’ll want to enjoy your life normally. You must be able to afford it.
It is best that the amount of installments repaid does not exceed 30% of net income. So, for example, a couple in which both partners earn an average national salary (currently USD 4,251.21 gross, or approx. USD 3028 net), can take a secure loan with an installment not exceeding USD 2,000 per month. Why? Because the cost of your own apartment is not only the cost of credit but also numerous fixed expenses – utilities, rent, furnishings. This further increases the level of the monthly load.
What about my financial credibility?
One of the very important elements that affect the assessment of our creditworthiness and the amount of margin granted by the bank is our creditworthiness. Whenever we want to take a loan, the bank downloads a report from our Credit Information Bureau about our previous commitments and their repayment timeliness.
Interestingly, both having a so-called bad credit history, as well as not having it at all, is not good information for the bank, which may result in us raising the margin by even 1-2%. Therefore, be prepared to take a loan.
Credit Checker stores information on repayment delays of at least 60 days. Such information is available for 5 years. They cannot be removed in any way. It is therefore very important to remember to pay all liabilities on time. If we have a credit card, it is worth setting a minimum card repayment every month, if we pay the installments for the purchase – automatic repayment order.
Do I have funds for my own contribution?
The level of required own contribution has been steadily increasing for three years. At the beginning of 2017, in accordance with the requirements of the Polish Financial Supervision Authority, the customer is obliged to contribute 20% of the value of the property in the form of own contribution, because the maximum allowable LTV ( loan to value ) is 80%.
But beware, this does not mean that we have to put in 20% of the value of the apartment in cash. There are still banks on the market that offer a loan for 90% of the value of real estate because the legislator has allowed 10% of the value of the real estate to be secured by other means.
Own contribution is of great importance for the cost of credit. In the absence of a 20% cash contribution, we will be charged with an increased interest – as a rule, banks will increase the loan margin until they reach an 80% repayment rate. Higher own contribution also saves on credit costs:
You deposit USD 40,000 more at the beginning and payback USD 68,590.63 less, which means you have over USD 28 thousand in your pocket. The monthly installment is USD 190 lower. Accumulation of own contribution is also a great exercise in this financial discipline, which is necessary to pay back the loan.