This blog article is aimed at real estate buyers. Buying a property is not a minor matter. It requires time and capital, market prospecting, visits, commitments, expenses, contracts, conversations, etc. If you have searched for an apartment to buy, you will know what to go through.
If you are currently searching for your ideal property or searching in the future, we highly recommend that your first stop be your bank. Otherwise, you can waste a lot of time and lose many more people.
Affirmations of potential buyers in a first telephone contact or even in a face-to-face visit in a property stories such as “I hope they give me 100% of the purchase value” or “if I like the property, I’ll find a way to buy it” are just two examples of myopia and the lack of financial education in the market. Many buyers carry out their purchasing processes in an irrational, crazy way, without stopping to think about the logical steps to take.
Most of the operations are financed by banks. And these entities are those that have the power to grant financing to those who request it. The advantage for buyers is that we all work with a bank and they already know us. Sometimes it is as simple as making a call or a face-to-face visit to determine how much we can get with what the bank finances us. Once we know the maximum price at which the bank would be willing to finance our purchase, we can start filtering searches to segment and launch requests for information or visits.
This preliminary step of talking to the bank is vital and absolutely necessary. Skipping it generally implies that that buyer can spend weeks or months consuming customer service resources and commercial resources from real estate agencies without any criteria. But here is not the worst, since, once you find your ideal property, then you will go to the bank and in a much higher percentage of cases than we would like, you will not be able to access financing. In the mortgage application process, banks usually take a few days to approve the economic profile and are usually burdensome processes in terms of documentation submission.
Outcome? The buyer is wasting time, the dozens of real estate agencies that serve this buyer are wasting time, and in a good% of cases, the bank is also losing it. And time is a precious resource.
The good news is that it has an easy solution: go to the bank before going to market. Banks are very interested in “placing mortgages” and will be happy to respond to requests for interest in the financed purchase of real estate, advising clients and setting the appropriate limits.
Once the ideal property has been found and a price agreement is reached, the buyer communicates it to the bank. And the bank will request an appraisal from an independent third party to determine if the property is really worth what the buyer is going to pay for it. A very common criterion for banks is to set the mortgage financing limits at 80% -90% of the appraised value or even at 80% -90% of the sale value. This means that the difference between that 80% that the bank will finance and the purchase price plus the expenses inherent to it (VAT or ITP-AJD, notary, agency, Registry …) must be provided by the buyer in hard cash. And this is where many buyers do not finish clarifying with the numbers.
To finish, let’s take an example. I want a flat of € 300,000 and I have € 50,000 saved. Can i buy it A priori no, but it will be the entity that ultimately determines it. If the appraisal resulted in € 330,000, the bank would finance 80%, which is € 264,000. The difference of € 36,000 plus taxes and expenses that are normally around 12% of the operation, that is, another € 39,600, must be contributed by the buyer with his own resources (capital or equity). In other words, for this specific example, buying an apartment of € 300,000 and that the appraisal is 10% higher (€ 330,000), will imply a capital outlay requirement of € 75,500. Therefore, we would be missing € 25,500 and we could not aspire to buy an apartment of those characteristics.
Therefore, the variables to consider in a mortgage financing operation are the sale price, the negotiation that can be carried out, the market valuation, the appraisal, the conditions of the bank and the financial situation of the buyer.