Buying your first home
How do you buy your first home?
Taking the first step onto the property market can feel overwhelming. The process seems complicated and expensive, but many have successfully climbed this mountain—the first step is understanding the process and what it involves.
Buying a home is often the biggest investment of your life, so it’s important to prepare well. Ideally, start planning for a home purchase a few years before it happens.
The key things to learn about are saving and down payment and loan options.
Saving and pown Payment
For buying your first home, the following rules apply:
Minimum down payment:
15% of the purchase price
Maximum loan:
85% of the purchase price
The down payment refers to funds you’ve saved and can pay upfront. The sooner you start saving, the better, as interest and inflation can make a big difference. In addition to your own savings, you can apply to use your accumulated private pension savings toward the down payment on your first home. This means you can use part of your supplementary pension savings tax-free for the down payment on your first property. If you start contributing to supplementary pension savings early, this amount can add up significantly. This is, of course, subject to current regulations, which may change in the future.
Loan Options and Central Bank Rules
The amount you can borrow depends mainly on your repayment ability and the rules set by the Central Bank regarding the maximum loan-to-value ratio and the percentage of monthly disposable income that can go toward mortgage payments.
Current rules state that the monthly mortgage payment may not exceed 40% of household income after tax when financing the purchase of a first home. These rules are designed to help individuals manage repayments and living costs and avoid overextending themselves.
What Is a Shared Equity Loan?
A shared equity loan is a special type of loan offered by the Housing and Construction Authority to first-time buyers and individuals under certain income and asset limits. These loans carry no interest and require no repayments.
Shared equity loans are only available for purchasing new apartments where an agreement exists between the Housing and Construction Authority and the property developer. In some cases, loans may also be available for older apartments that have been renovated to the same standard as new properties. On property websites, you can often filter for homes eligible for shared equity loans.
Credit Assessment – What Determines Loan Eligibility?
To assess repayment ability, a credit assessment must be carried out. This process can be completed in just a few minutes on Arion Bank’s website. Before doing the assessment, you can estimate your repayment capacity by entering your income and financial obligations.
Keep in mind that the final credit assessment always considers the Central Bank’s rules on the percentage of disposable income allowed for mortgage repayments. Arion Bank only considers taxable income when performing the assessment—tax-free income such as car allowances is excluded.
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