If you are wondering what the amount of deposit needed for a flat is and how to calculate that amount based on the value of the property you wish to acquire, in this article we provide you with the key details so that you can determine if the purchase you are considering is viable.
What is the down payment on a house?
The down payment on a house is the amount of money that we must contribute out of our own pocket when purchasing a property with a mortgage loan. This amount is necessary because banks only finance a percentage of the total value of the property, which is determined through an appraisal or the purchase price.
Typically, the bank will finance up to 80% of the lower of the two values: the agreed purchase price and the appraisal value. This applies when it comes to the acquisition of a primary residence. In the case of other types of property, such as second homes, commercial premises, parking spaces or land, the percentage of financing is usually reduced to between 60% and 70%.
How much do you have to contribute as a down payment for an apartment?
Most commonly, banks only finance a percentage of the value of the primary residence, generally not 100%. This practice became stricter after the 2008 mortgage crisis, when entities began to be more cautious when assessing risks and granting mortgages. In addition, laws were tightened to limit risks from a legal point of view.
- The reason for this restriction is that the more financing, the greater the risk of default. Having enough money to cover the down payment on a flat reflects a certain capacity to save and is an indicator of financial responsibility.
- Since 2009, mortgages can only be securitised if the financing does not exceed 80% of the appraisal value. Securitisation is a process by which mortgage loans are grouped together and sold to third parties, such as investment funds, so that the risk is transferred to another entity.
Before the crisis, it was more common for banks to take on greater risks and then transfer that risk to other investors by selling these loans. However, today, it is difficult to obtain financing above 80% or access a mortgage loan if you do not have a solid financial profile.
Example: The down payment for a flat of €20,000
The amount of the down payment for a flat directly depends on the value of the property. For example, if you are wondering how much the down payment is for a flat in Madrid, you will have to start from the purchase price and the appraisal value, together with the mortgage offer from the bank, to find out the exact figure.
Let's say you want to buy a house for €100,000. In this case, you should provide 20% of that amount as a down payment, provided that this percentage is applied to the lower value between the appraisal and the purchase price. This means that you will need €20,000 for the down payment.
In addition, it is important to remember that the costs associated with formalising the sale and mortgage are usually around 10% of the value of the property. This means that, in addition to the €20,000 down payment, you will need to have another €10,000 available to cover these expenses, bringing the total savings required to €30,000.
Depending on the applicable taxes, such as VAT or IGIC in the case of new homes, or ITP in other situations, as well as the autonomous community in which you are located (due to autonomous management taxes), this percentage could vary.
Is it possible to buy a house without a down payment?
In very exceptional situations, you can obtain a mortgage that finances 90% or even 100% of the value of the property. Factors such as having a solid financial profile, an excellent credit history or purchasing a flat from a bank can facilitate this option. Another alternative is to opt for ICO guarantees for the purchase of a home, as long as the required criteria are met.
How much should you put down as a down payment for a mortgage?
The amount you will have to pay as a down payment for a mortgage will depend on your bank's offer, in particular on the percentage it is willing to finance, and on the costs associated with the mortgage and the sale in your case. In general, this sum is around 30% of the value of the habitual residence, taking as a reference the appraisal value or the sale price, normally the lower of these two values.
However, nothing prevents you from requesting a lower amount if you can do so. For example, if you decide to contribute 50% of the value of the property and ask for a loan for the remaining 50%, you will save money in the long term, since you will pay less interest. Paying 3% on 100,000 euros is not the same as paying 3% on 600,000 euros.
In addition, by requesting less money, you could shorten the term of your mortgage and repay the loan in less time. Of course, it is crucial not to run out of savings completely and to maintain a sufficient fund to avoid financial risks.
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