One of the most popular Google search terms at the moment is: "What is the maximum amount that I can borrow/finance?". As a financial advisor, I understand that this is the first question for every home seeker.
An even more important question, however, is what you want to spend on a monthly basis and how much you can spend on mortgage payments along with the costs of the things you want to keep doing, such as holidays, sports, eating out, etc. Once you've looked at this critically, the next step is to determine the maximum mortgage loan on the basis of your income. As a buyer you must meet two conditions:
- Loan to income (the income lending criteria): the maximum amount that you can finance based on your annual income;
- Loan to value (the collateral finance criteria): the maximum amount that you can finance based on the market value of the collateral.
Loan to income
The National Institute for Budget Information (NIBUD) determines the so-called housing expense ratio each year. This is an income-related percentage that indicates the maximum amount you can spend on living expenses.
In principle, the higher the income, the more you can finance. However, it's not just related to the gross annual income. An irrevocable increase in income within 6 months can also be included in the calculation, as well as the average of any bonuses over the past three years. In the case of a couple, the maximum amount that can be borrowed is calculated on the basis of the highest income. This so-called housing expense ratio then applies to both individuals.
Loan to value
Once the income has been established, the maximum purchase price of the new home can be determined. If you hire an estate agent, which in principle I would recommend to everyone in this hectic market, it's safe to assume an average of 6% in additional buyer's costs. This means that when you buy a home for € 200,000 the investment required is € 212,000.
In principle, the market value of the home is determined on the basis of an appraisal report. This report must be drawn up by an independent expert who also makes a comparison with a number of similar properties sold in the past year. In 2014, the maximum amount that could be co-financed was set at 4%. If the market value of the property from the example above is also valued at € 200,000, the buyer can finance a maximum of 200,000 x 1.04 = € 208,000. The difference between the required investment and the maximum amount to be borrowed (€ 4,000) then comes out of your own pocket.
The government has brought down this loan to value by 1% to 100% in 2018. This means that more and more money out of your own pocket will be needed in order to be eligible for a new home.If you are interested in finding out how much you can potentially borrow/finance then feel free to make an appointment via the contact form or call us on 020 - 575 33 20.