Are you considering a real estate purchase to acquire a house or an apartment? Before embarking on the adventure, it is necessary that you determine the budget you have available for your purchase. This will allow you to conduct targeted research and save you from disappointment.
How to calculate your budget envelope closest to your needs? What are your borrowing capacities? How much do you need per month to continue to live comfortably? So many questions that will have to be answered before buying, we are going through this file.
Know the amount of your contribution
If you have enough savings available, especially following a donation or an inheritance, you will have few questions to ask yourself, since you can buy your house or your apartment with cash.
Of course, this exception concerns a minority, and you will most of the time have recourse to mortgage to finance your purchase. The first element that will feed your budget will be your bank contribution.
This is the amount, generally taken from your savings, that you will take out of your investments to support your file and pay part of your mortgage. It is advisable to have a personal contribution of at least 10% to give your project more credibility with banking establishments.
This amount may be higher, in which case it will facilitate negotiations, or lower, which will make your case more complex, but not impossible. To keep a safety mattress in the event of a hard blow, it is best not to transfer all your savings towards the purchase of real estate.
Thus, if you have aside the sum of 40,000 euros, privilege security and withdraw only half of this sum, or 20,000 euros, to constitute your personal contribution. We will keep this example in mind for the rest of this article.
Calculate your borrowing capacity
The borrowing capacity, or repayment capacity, is calculated according to your income and your expenses. It is to be put in relation to your debt ratio. The latter, unless you have a very high income, must not exceed 33% for the bank to accept your mortgage.
To know the monthly budget that you can allocate to your mortgage, it is necessary to take stock of its inflows and outflows. In practice, you can edit your account statements for the last three months and draw up a table in two columns.
In the first column, you will list the cash inflows (salaries, recurring bonuses, various allowances, alimony, rental income, income from movable property, etc.). In the second column, you will list the cash outflows that will be taken into consideration by the banks (loan maturities, remaining rents after acquisition, alimony paid).
If you earn 3,000 euros net per month, without other income, and you have to pay a car loan of 300 euros per month, your borrowing capacity is considered to be 891 euros per month.
Calculation of your borrowing capacity: (3,000 – 300) x 33% = € 891
In other words, your debt ratio is 33%, your borrowing capacity is 891 euros and your remainder to live is 1,809 euros.
Calculation of your remainder to live: 3,000 – 300 – 891 = € 1,809
Take into account the costs associated with your new acquisition
We don’t always think about it, especially when you are a first-time buyer, but a real estate purchase generates costs, both related to the acquisition of the property and its maintenance over time. By becoming an owner, you will indeed have additional costs that you did not have as a tenant.
Fees related to the bank loan
If the purchase price of housing is of course decisive, do not neglect all the ancillary costs, which, put together, represent several thousand euros.
When you go through a real estate agency, or a network of independent real estate agents, a commission is taken on the sale to compensate them. This commission can vary considerably between two competing agencies or two properties of different value.
Agency fees generally represent 3 to 10% of the price of the property. The notable advantage is that you are aware of these costs from the research stage, since they must be indicated in real estate advertisements.
When you go through a mortgage broker, you must add the amount of commissions due to him to your total budget. Again, commissions can vary from one to three times between two brokerage firms.
It’s up to you to weigh the pros and cons before hiring a broker, and whether the rates negotiated by them reimburse the work done. If you have a good record, you can also turn to an online broker, which is often cheaper.
These are the fees you will have to pay when you sign the deed of sale for your home. They are the responsibility of the purchaser and depend on the sale price of the property on the one hand, and the age of the property on the other hand:
- For a new apartment of 200,000 euros, count around 3% of notary fees, or 6,000 euros of notary
- For an old house of 200,000 euros, count around 8% of notary fees, or 16,000 euros of notary fees
When you make a mortgage, you will of course have to take into account the loan rate granted by the bank, but also the ancillary costs.
These are administrative fees, guarantee costs (mortgage, privilege of the lender of money, surety) or even costs related to borrower insurance. Fortunately, credit institutions are now required to give you the APR (Annualized Global Effective Rate) for any loan offer.
This rate includes interest, but also the ancillary costs listed above.
Costs related to the property
By becoming an owner, also consider including in your living expenses a sufficient budget to pay your new expenses. Several expense items are to be considered, because you will no doubt have to face them throughout the life of your credit:
- Property tax: it is due each year, even if you benefit from a two-year exemption for a purchase in the new building
- Co-ownership charges: they are determined by the property manager and are due when you buy an apartment, or in certain houses located in subdivision
- Maintenance and repair work: the water heater breaks down and it must be replaced, the VMC no longer works and it must be repaired, all of these jobs for which you will have to have available savings
In the end, calculating your real estate budget for the purchase of a house or an apartment is not so easy. You must especially keep in mind your remaining living to meet the daily expenses without going into debt.
To calculate your debt ratio or your borrowing capacity, do not hesitate to use our online simulators. They are of invaluable help in giving you the fairest amount of your real estate envelope.