Before buying a property, preparing your mortgage application properly is essential. With a complete and clear file, you have every chance of acquiring the property that you have set your heart on. But how do you go about creating a convincing mortgage application? Here are some tips to follow to stack the odds in your favour.
The criteria for accepting your loan application and setting the interest rate may vary from one bank to another, but three of them are shared by the majority of banking institutions: the down payment, the debt level and disposable income.
The down payment is the amount of funds you will use to finance your property purchase. In January 2021, the Financial Sector Supervisory Commission (Commission de Surveillance du Secteur Financier or CSSF) imposed rules applicable to all banks concerning down payments. They can be summarised as follows. On signing the loan agreement, the Loan to Value (LTV) ratio may not exceed 80% and your down payment must be at least 20%. This may however be adapted to your situation. This 80% principle only applies if you are already a homeowner, and wish to expand your assets (by purchasing properties to rent out, for example). If you are a first-time buyer, you may be granted up to 100% of the amount for the property concerned, as long as you have the resources necessary to cover the monthly payments. If you already own your primary residence but wish to purchase a new one, the maximum limit is 90%. Under certain conditions, this may be increased up to 100%. This scenario assumes of course that when purchasing the new property, you also sell the old one. Nevertheless, you will have more chance of having your loan application accepted if you are able to make a down payment.
The calculation of your debt level consists of comparing your income and your outgoings to evaluate the percentage of income taken up by recurring expenses. For most financial institutions, when outgoings are more than a third of monthly income, the risk of excessive indebtedness or insolvency strongly increases. If your debt level is too high, you may extend the duration of the loan. It will cost you more in the long run, but your loan application has more chance of being accepted.
Disposable income corresponds to the amount that remains available to you after you have met all your expenses. It is used to determine what is left to enable you to live normally and ensure that unavoidable spending is met, such as food and transport. The calculation of your disposable income will depend on your household situation – single, in a couple, with or without children? - on your property situation - are you a tenant or homeowner? – on your professional situation – are you an employee, self-employed or do you work in a liberal profession? - and on your current and future income - is it high or are you a young executive with high earning potential? If the bank ultimately considers that your disposable income is more than comfortable, it may agree to go beyond the 33% debt level rule in granting you a loan, after a detailed analysis intended to provide you with the best protection.
To analyse your application, the bank needs information that enables it to check if you meet the three criteria set out above and if your profile matches its commercial policy. The more complete, clear and transparent your file is, the more likely it is you will have a quick and favourable response.
A growing number of banks today allow you to complete the whole process online. At ING, you have three options. You can simulate your mortgage to get an idea of the monthly repayments relating to your property project. The simulator also enables you to find out how much you could borrow depending on your personal situation. Finally, you can submit a loan application. After having conducted the simulation online, you can at the same time create your client space, to which you can directly upload all the supporting documents for your loan application. You thus save valuable time. A considerable advantage given that you only have 4 to 6 weeks – the average time frame of a preliminary sales agreement – to find a loan!
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