The knowledge of the market can avoid impulsive decisions that end in a bad purchase.
Local professionals and friends should act as advisors, although the ultimate responsibility lies with you. Fundamental question such as how much can I spend? What size of home do I need? and, in what area? Are the first questions that need to be answered.
Buying a house is for many people the biggest expense they will make throughout their entire life. It supposes a great economic effort and, in the case of opting for a mortgage, a marriage with the bank in the medium or long term. On the other hand, in a context such as the current one at historically low rates, once the tap on bank financing has reopened and rental prices skyrocket, buying a home is an opportunity for many.
But, what seems like an ideal time to start the search, whether to have a family home owned or an investment, should not be the result of an impulsive decision. If you are going to be almost half a life tied to a monthly payment, what less than a minimum reflection.
The three basic questions
This is the first recommendation made by experts who, on a daily basis, meet clients who, because they let themselves be carried away by an impulse, make a mistake in their choice of home. To avoid this, the first thing, they say, is to answer three key questions: How much can I spend? What size of home do I need? and, in what area would I like to live?
All investments involve a risk and require reflection, buying a home is not the same as a car.
The first thing is to know how the market is, and not be too rigid with your requirements, because wed may find a flat at a good price but it will not be in the desired area or the size we were looking but the price difference could be substantial.
First thing first….A realistic budget
The economic issue is usually the one that generates the most errors among buyers. Most people do not calculate an exact budget, depending on their available assets or if they can request a sum from the bank or a family member, but sometimes they forget that at the price of the house there are expenses associated with the purchase contract, so the amount will increase with respect to the advertised price. There are the expenses of the notary, estate agency and registry, to which, in the case of a new house, it will be necessary to add the VAT; and, in a second-hand property, property transfer tax (ITP). Both usually account for around 10% of the cost of the deed price. It is so important to know the total of what is going to be paid, as well as how the payment will be made: the form and means, the possible need for endorsements, the discounts of the amounts paid on account of the total amount of the mortgage, etc.
One step ahead
The expenses of the purchase contract, the furniture and the possible reform must be included in the budget.
In case the idea is to apply for a mortgage, it will be necessary to add the expenses of mortgage appraisal survey demanded by the bank , which suppose about 400 Euros on average. The costs related to the notary, agency and the tax of Documented Legal Acts (AJD) correspond to the bank since the approval, yesterday, of the new Real Estate Credit Law.
It is also essential to have a more or less generous upfront payment. Although bank financing has returned after the crisis, the down payments to a home is far from the good old days; today it is around 30%, which requires previous savings.
Which is the right mortgage?
And how to choose the quotas correctly? The popular 30% rule gives a pretty good idea, that is, that the monthly amount does not suppose more than 30% of your income. Also, it is advisable to assess with some perspective in mind whether the current situation will remain constant over time or if, for example, you are going to ask for a reduction in the work schedule soon, change your car or you expect to have a child, with the added expenses what that entails.
To avoid future troubles, it is important to know that the fee will vary according to interest rates and the Euribor. In this apparently ideal environment of minimum rates, the forecast is that it will rise in the future, so it is advisable to add in the calculation any future increase if occurs.
Go for the fix rate if you can afford it
A fixed rate mortgage can avoid the problem. If the Euribor is at its lowest level, we must take into account that it will start to rise, in fact it is already doing it for the first time in four years, variable rate mortgages will become more expensive, without any doubt.
If you opt for a mortgage, it is convenient that the monthly payment does not exceed 30% of the income this is the first rule which I strongly advise.
All this information can overwhelm anyone, especially if you do not have financial knowledge, but do not forget that the bank and the notary can act as advisors.
By the way, furniture and other similar expenses should also be included in the “how much I can spend”, especially if it is a second-hand home. In that case, the amount will increase by around 300 to 500 euros per square meter or even more depending on the quality of the furniture.
On the other hand, it must also be borne in mind that, in addition to the costs of the renovation, the building may have defects due to age or poor installation. Before making the decision it is advisable to check that the net square meters specified on the literature are real, the layout possibilities for a reform, the load bearing walls, try to locate the water and electricity installations and pay attention to the ventilation holes of bathrooms and kitchens.
I always recommend to have a survey done by an architect. In case that the structural defects of the house or the building appear in the survey, that may be a cause for a price negotiation.
Visit the site as many times as possible
It is advisable to visit the house several times and at different times of the day before making the decision.
The seller’s obligation if it a property developer (and you are buying from plans) to provide the client with all the documentation of the property. The registration in the land registry, the companies’ registrar office reference, plan of the location and of the property, the net area, the total price with accessory services and the list of finishes. If any of these information is not provided the client can and should demand them.
Once all the calculations are done, if you continue with the purchase plan, it is fundamental to choose correctly the area in which you want to live.
Choose the neighbourhood well
To compare market prices, the customer can go to a real estate, but also to official bodies such as the INE, the Ministry of Development or the Bank of Spain.
It is usual for one client to have an idealized location and finally decide for another, because he had not taken into account multiple.
Among these factors may be access to public transport, the availability of parking spaces, the variety of schools if you have children or are expected to have them, the proximity to green areas, and, of course, supermarkets and shopping areas.
In the case of new housing, which can be found mostly in the peripheries or new urbanizations, although it is not necessary to take into account the considerations of old properties as they usually are new, it is worth knowing that, in terms of investment, the risk of a purchase, in a resort, is always higher than in the centre of a city or town.
Before making the decision, the square meters of the house, the layout, the rooms, whether it is a rectangular or square plan, if there are enough windows to the exterior, all that must be carefully analysed. But we must also address issues that, a priori, seem less relevant and that can later be a headache: that the house has gas heating or a cold-hot air pump can raise or lower future bills. And, if you have common services, such as paddle tennis court, pool or gym, it will add an extra value to the property but it will also have to be counted as an extra expense for it maintenance. To evaluate the construction materials and any structural fault, it is advisable to have a professional who will values the quality of the construction.
And, before closing the deal, it is almost an obligation to negotiate. It can and must be done. Although with sufficient criteria and knowing any factor that may influence the final price.