How much house loan can I afford and how much house loan will I probably get? Everyone should ask themselves these two questions before negotiating real estate financing with their bank. Computers that credit brokers provide free of charge on the Internet help answer both questions.
However, you will never be able to make exact forecasts. The computers are not to blame for that. The reason why it is practically impossible to precisely predict the maximum loan amount and your own performance are due to the different lending guidelines and calculation methods used by the banks.
Banks are not obliged to disclose how they assess the performance and creditworthiness of their customers in accordance with the public procurement guidelines. Nevertheless, preliminary considerations regarding the performance and the possible maximum loan amount are useful. They help you to realistically assess your credit options and always keep an eye on the financial viability when looking for a suitable property.
How much home loan can I afford?
As a first step, you should assess your financial resilience. This is done with a household bill, in which you compare income and expenditure.
Take into account only the regular income and not one-off benefits that can be subject to change. Your bank will do the same.
- Eligible income includes your monthly salary, child benefit, and rental and lease income, provided they flow regularly and sustainably.
- Fees, commissions, holiday bonuses, and Christmas bonuses should be left out of the household bill.
Treat these irregular earnings as a hidden reserve for unforeseen expenses.
Employees and civil servants find it relatively easy to determine eligible income. The basis is the current salary payments.
The situation is different for the self-employed, freelancers and traders. You have to average the profits from the last 3 to 5 years.
The bank will want to determine the average profit
That can be achieved on the basis of tax assessments, tax consultant calculations, annual financial statements or business evaluations.
Many banks only give self-employed people a loan for private purposes after they have successfully worked for two to five years. Now that you’ve determined your eligible annual income, it’s time to spend. As with revenue, you should prepare an annual statement.
In this way, you ensure that positions that occur at irregular intervals, for example only once a year or quarterly, are not forgotten. Expenditures include, for example, groceries, rent, ancillary rental costs, installments for current loans, clothing, insurance, costs for holidays, expenses for gifts, maintenance payments.
It is important not to forget anything. Unless you have kept a household book, you will not know exactly the cost of food, clothing and other not exactly fixed expenses of daily life.
However, try to estimate these costs as accurately as possible. Now compare your regular annual income with the annual costs. The amount that remains after deducting the costs defines your financial resilience. This amount is available to repay a home loan.
Nothing is left or the amount is too small? Then you need a budget for the future.
Define different cost lines: for example food, clothing, expenses for hobbies and for vacation.
Think about how much you can save in each of these lines of business compared to the current state without affecting your quality of life too much.
Be realistic. If you strangle too much, you will surely miss your targets.
If you live for rent, you have a decisive advantage. The net rent disappears after you move into your own home. The net rent therefore no longer has to be taken into account when determining future financial resilience.
Determination of the household flat rate by banks
Your internal calculation of household costs and the monthly financial scope is of primary importance to you. The table helps you not to overdo the installment for your home loan.
Banks, on the other hand, will only be marginally interested in your list. You estimate your deductible in accordance with the guidelines of internal guidelines, which can vary widely among banks.
Your deductible consists of two items: the cost of living and a security surcharge set by the bank in the guidelines.
Many banks set a lump sum between 1,000 dollars and 1,200 dollars for married couples. For each child, 200 to 300 dollars are applied. A couple with two children can therefore expect a lump sum between 1,400 dollars and 1,800 dollars.