Real Estate Budget estimate | The 6 Steps to define your investment potential
By reading this document, you will obtain all the information you need to draw up a Real Estate Budget estimate. You will thus know your investment potential for the acquisition of your future property.
You will thus be able to quickly define:
1) Your personal contribution amount
2) Your borrowing capacity for the purchase of the property
3) Your purchasing potential
4) Financial expenses related to the purchase
5) Your income available to support expenses
6) Other additional expenses
YOUR DECISION IS MADE! You are about to purchase a property.
You will finally be able to fulfil your dream of independence and finally live at home. In your real “Home Sweet Home”!
You already have a fairly precise idea of what you are looking for (villa with land in the countryside, cosy flat or loft in the city). But what is the budget you will be able to devote to it?
Either you have a personal asset that will allow you to finance the property of your dreams in full. Or you will have to take out a mortgage loan to buy it.
And before you start your search, you will need to draw up a detailed and realistic budget. This will enable you to establish precisely how much money you will have available for the purchase of your future property.
We have developed a tool for you to simulate the Real Estate Budget estimate. Please note that it is FREE for YOU. If you wish to use it, simply click on the link below. We will be happy to send it to you by email.
We have developed a tool for you to simulate the Real Estate Budget estimate. Please note that it is FREE for YOU. If you wish to use it, simply click on the link below. We will be happy to send it to you by email.
Here are all the steps to follow to make the Real Estate Budget estimate.
1. Your personal contribution amount
One of the most important components, if not the main one, in establishing the Real Estate Budget estimate. The personal funds you will commit can come from several sources:
- Your personal savings (and those of your spouse)
- Gains from an investment or investment
- The sale of another home
- Amounts from an inheritance
- Professional provident fund
The amount of personal contribution you will release will have a direct impact on the amount of loan you will be able to obtain. The greater its share will be in relation to the total purchase amount, the easier it will be for you to obtain a mortgage.
2. Your borrowing capacity to purchase the property
How much will the financial institution agree to grant you for the purchase of your property?
The first influencing factor will be your current financial statements. They will be critical for the institution that will advance you the funds.
In France, if your financial situation allows it, you can obtain up to 100% of the purchase price of the property.
In Switzerland, the maximum is 80%. You will therefore in all cases have to provide a personal contribution of at least 20%. A maximum of 10% of this can be made up by your occupational pension fund (LPP). The remaining 10% must be a cash contribution.
In Portugal, up to 90% of the financing can be provided through a mortgage loan. This always depends on your financial statements.
3. Your buying potential
Now that you know the conditions required to obtain a mortgage, you will be able to determine your purchasing potential. This involves defining the amount of investment you can reasonably expect for the purchase of your property.
In France, the calculation is done according to a very precise rule. On the one hand, you have to add up the monthly amount of your mortgage repayment (interest + amortisation) and add all your fixed charges (alimony, taxes, insurance, etc.). The sum of these amounts must not exceed 33% of your monthly income. This is your debt ratio.
Example
Your monthly income is EUR 5,000.
Your debt ratio may not exceed 33%, i.e. EUR 1,650.
Your fixed charges amount to EUR 600 per month.
You therefore have EUR 1,050 available for the monthly costs of the mortgage loan, i.e. EUR 12,600 per year.
Depending on the interest rate applied on the mortgage loan (assumption 2%), and the interest rate on the amortization (assumption 1%). You could then benefit from a loan of EUR 420,000: (EUR 12,600/3)*100
In Switzerland, the reasoning is somewhat different for determining purchasing potential. There are 2 conditions to be met:
Condition n°1
As mentioned above, the personal contribution of funds must be at least 20%.
Example
If your personal contribution is CHF 80.000, the maximum purchase amount of your property will be CHF 400.000: (CHF 80.000/20)*100
Condition n°2
Your mortgage charges (interest + amortization + condominium fees) must not exceed 33% of your gross income.
Example (using the example above)
Purchase price of the property: CHF 400.000
Personal contribution of funds. : CHF 80.000
Amount of mortgage loan: CHF 320,000
Interest rate: 1.5% on CHF 320,000, i.e. CHF 4,800 per year
Amortisation: 1% of the borrowed amount, i.e. CHF 3,200 per year
PPE expenses 1% of the value of the property, i.e. CHF 4,000 per year
Total expenses: CHF 12,000 (CHF 4,800 + CHF 3,200 + CHF 4,000)
Minimum gross annual income must be CHF 36,000: (CHF 12,000/33)*100
For Portugal, the approach is similar to that of Switzerland. There is only one difference in terms of the contribution of personal funds, which is limited to 10%.
4. Financial expenses related to the acquisition
In order to have an overall view of your Real Estate Budget estimate, you need to take into consideration a whole series of costs that result directly from your purchase.
Here are the main costs that you will need to get a precise estimate from the relevant authorities.
Interest on the mortgage loan
Before you sign your mortgage loan, you will negotiate an interest rate with the financial institution. This rate is applied to the amount of the loan and the resulting interest will be charged to you.
Amortisation of the mortgage loan
This is the mortgage repayment amount. It is also determined in the mortgage loan contract.
Amortization can be direct, by repaying a sum of money at periods agreed in the loan contract. It can also be indirect, if it is indexed to a life insurance policy, for example.
Co-ownership charges
If your property is part of a co-ownership, you will be charged for maintenance and upkeep costs. Find out the amount of these costs well in advance.
Renovation costs
If you wish to make any alterations to your property, you will need to carefully evaluate them. Have several companies draw up an estimate for the work to be done. By comparing the amounts, you will have a precise idea of the value of the transformation costs.
Residential and property tax
This is a tax to be paid to the authorities of your place of residence. The amount is usually not very high. However, it is preferable to include it in your Real Estate Budget estimate as well.
Notary’s / lawyer’s fees
For the management of the file and the registration of the property in your name in the land register, you will have to pay fees to the notary and/or your lawyer. This is usually a few thousand euros, the amount depending on the value of the property.
5. Your income available to support expenses
This is one of your main arguments for accessing a mortgage. Not only will your income have to meet the maximum debt ratio rule of 33%, but it will also have to be stable.
The loan will certainly be repaid over many years. You must be able to prove that you have a stable job. Working in a buoyant sector of activity in the future will also be to your advantage.
6. Other secondary expenses
In order to be complete when drawing up your Real Estate Budget estimate, you can also take into account other costs that are often inseparable when buying a property.
Moving
Depending on the volume of furniture and the distance between you and your new property, this cost item could be significant.
Here again, be sure to consult several specialized companies for a comparison of moving costs.
Purchase of new furniture
When starting a new life in your property, you will probably want to change the interior atmosphere and buy new furniture.
Take inventory and estimate the potential costs. This will help you better plan the purchase.
To make it easier for you
As you will have noticed, to obtain a Real Estate Budget estimate, there are a lot of variables to take into account.
This is why we have developed a simulation tool. In just a few clicks, it allows you to obtain the amount you will be able to invest in your future property.
If you have any questions while using it, we will be happy to answer them.
Knowing exactly how much money you will have available to purchase your property is the first piece of information you need to start any research process.
Do not forget it! This will save you a great deal of time and make it all the easier for you to obtain the necessary financing.
Thank you for taking the time to read our article through to the end.
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