How Much to Spend on a Mortgage Based on Salary
1 March, 2023 | Alba Tebar
Are you about to buy a new house? It is your first time in the real estate market world? Do not panic any more! It is normal to have lots of doubts and to feel overwhelmed. Nobody has ever explained to us how all this market works, so it is completely logical to feel lost. That is why Hipotecasplus is here: to guide you help you in finding the best possible mortgage for you.
We are intermediates between bank entities and costumers, as we act as a bridge that links these two subjects. Our long experience in that field gives us the tools to know how to act and where to find the perfect mortgage for all of our customers. According to your personal interests, your personal needs and your personal situation, we will search for the mortgage that can better fit you. What’s more, we will negotiate with all the banks until we obtain the best possible conditions.
Seen with perspective, do not think about it any more and keep in contact with us, we will ask for no commitment! By this way, your doubts will be solved and your dream house will be one step close to you and your family. You know: if you really want to success in that aspect, do not hesitate to contact us…. Count on us as much as we will count of you, and a bright future will be guaranteed!
Let’s move on now to the link between your mortgage and your salary. It is undeniable that your salary will take a main role in determining how much house you can afford, or even which type of mortgage you will be able to obtain. That is why we have writer this article: to help you determine how much of your income you should put into mortgage payments every month.
When we talk about mortgage and how much we should spend on that according to our salaries, we should always be aware of our indebtedness situation. As Bank of Spain suggests, you should not allocate more than the 30% or 35% of your salary into mortgage. By this way, you could have some leeway to face other unexpected expenses, or even use this part of your salary to have some extra savings.
This percentage can vary according to your personal situation. The most common example here is when you have other financial debts apart from the mortgage one. In that situation, banks could lend you some extra “space” to breath. So, don’t worry, because most of the banks will accept letting you spend the 35% or 40% of your income on paying back all your debts, including mortgage.
In addition, Bank of Spain likes to highlight one simple -but important- aspect when choosing the repayment term. The longer the term, the lower the instalments. This means that you could negotiate with the bank a longer repayment term in order to keep your indebtedness level low, due to lower instalments.
Nevertheless, you should also remember that to have a longer repayment term means to be more likely to experience a variation of the terms and conditions of the loan, such as the interest rate. In that sense, it is important to study your personal situation with an expert, such as Hipotecasplus, and try to find the best solution that better suits to you.
Other bank requirements
It is true that not every bank entity will ask for the same requirements regarding mortgages. However, it is clear that you must accomplish some basic characteristics and requirements in order to obtain their “yes” to your mortgage. Some of the basic things you will need to pay more attention to are the following.
When talking about affordability, your monthly income is key. The total amount of money you receive on a regular basis, such as salary or income for investments, is the first thing banks will ask for before giving you any mortgage offer. In that sense, having a stable job, such as being an official, is a good guarantee for banks, because you can prove your salary will be fixed and stable throughout the years. That gives your profile a security, and makes it stronger in the eyes of the banks.
Or, in other words, cash reserves. We are talking about the amount of money you have available to make a down payment and cover closing costs. In general, banks will finance up to a 70% of your property value if you live and above all pay your taxes in the euro zone, so it is recommended to have saved about a 30% of the property value.
Debt and expenses
Banks do not like debts. They make you feel weak from an economic perspective, so bank entitites won’t be sure to bet for you and might prefer to not give you the mortgage. On the other hand, when taking about expenses, you will need to have them all controlled and make sure you can afford all of them. We are referring to monthly obligations you may have, such as credit cards, car payments, student loans or groceries, among others. In that field, you should remember that lenders -so to say, banks- will look closely at your debt-to-income ratio, in order to get a clear picture of how risky is it to lean you some money.
Finally, it is also important to keep in mind that banks take seriously for credit profile. Your credit score and the amount of money of debt you owe will directly influence their decision to give you or not that mortgage you have been dreaming of.
Remember, if you have any doubt regarding mortgage, do not hesitate to contact Hipotecasplus. We will be more than happy to help you!
Furthermore, you can also take a look at our online calculator. This is a simulator that, depending on your personal details, will quickly calculate the viability of your mortgage. By this way, it will be so much easier for you to know how mush could you (or should you) spend on a mortgage.