How should you assess the amount of personal contribution that will be required to complete your real estate purchase? Contribution or not contribution?
A good contribution to negotiate your mortgage
The personal contribution in the context of a mortgage represents the amount you have in savings or on a current account and that will allow you to finance part of your real estate acquisition. This money can come from a savings built up for years but also from an inheritance or a donation, or even a release of business participation, or why not a donation. The solutions are here multiple.
What is interesting with a contribution is that the higher it is, the lower the share of the acquisition that the bank will have to finance will be low which has the direct consequence of lowering the financial risk for the bank, so it will be reassured. .. Another signal that you send to the bank when you have a contribution is that you are able to save, you are not the cicada but rather the ant – it is a sign that you are able to repay a credit. Currently it is advisable to have a minimum contribution of 10% (it represents the costs) knowing that 30% is the ideal.
Here is an example: if you buy a real estate worth 400,000 dollars including all costs, the minimum contribution would be 40,000 dollars.
The bottom line is that the smaller the bank-financed share, the less risky it takes. Indeed, if you were unable to repay your credit at a given time, the bank can then sell your property knowing that the purpose of this sale is to allow the bank to pay off completely. If her share is small she will be certain to repay, so zero risk. On the other hand, if on the other hand it finances all the risk of not obtaining the asking price is much greater, hence the interest for the bank to require a maximum contribution.
Borrow without input? It’s possible.
If you have no contribution or prefer to keep your savings to cope with the many fluctuations in the current economic life, and you want to become owner or make a rental investment, know that it is possible but it will be more difficult.
The quality of your file will then be scrutinized by the bank which means that your file must be very well put together. In particular, he must prove that you have the necessary borrowing capacity to obtain this financing, ie that your budget will allow you to repay the monthly installments of the future credit. In other words, your debt ratio should be as low as possible.
In a more general way it is necessary to think before any request for loan to balance your accounts (no overdraft in the 6 months preceding the request for financing) so that at the time of the maintenance your accounts are net of all agios. This is a very important point because if you have agios it is that you do not control your budget and there would be a very bad signal that you send to the financing body whatever it is.
Finally, note that in the context of a rental investment (you buy a property to rent to others), the contribution is a less important criterion because if you are defective for the repayment of the monthly payments it is your tenant who will pay the rent . The rental yield then becomes one of the important keys to the application for funding.