What is taken into account when granting a mortgage?

One of the most important decisions in people’s lives is buying a house, due to the large amount of money that will be committed over a long period of time.

Always, when granting you a mortgage, financial institutions have to evaluate the risk of lending you money. The objective is to try to avoid granting mortgages to people who have problems repaying the financing obtained.

For this reason, some limitations are established when granting mortgages that it is important that you know well before proceeding to apply for yours. If you take them into account before starting your application, you will be closer to being granted your mortgage.

To know the amount they can grant you for your mortgage, the bank takes the following aspects into account:

1. Your payment capacity and solvency

The fee to be paid will be the result of several factors added together: Amount of the loan, period set for repayment and the chosen interest rate. It is usually considered that the monthly mortgage payment should not exceed 35% of your income.

To calculate your payment capacity, financial institutions, in addition to your net income, will take into account:

• Other financing that you have granted and whether or not they are up to date with payments.
• Your ability to generate resources by assessing your age, your marital status, the number of people who depend on you, your profession, type of employment contract, your seniority at work.
• The assets you have to be able to service the loan in case of non-payment.

2.The appraised value of the home

The appraisal value of the home is an objective data carried out by an appraisal company independent of the bank and approved by the Bank of Spain. This is a reference value that will allow us to know up to what amount of financing they can grant us.

To calculate the appraisal value, the market price of other homes in the area with similar characteristics is taken as a reference.

3. The percentage of financing requested

The financing percentage is the ratio between the requested amount of the mortgage loan and the appraised value. Banks do not usually grant loans for home purchases with a financing percentage of more than 80% of the lower value between the appraisal value and the purchase value.