Rules of thumb for financial viability
Many people are prepared to spend more on their own home than on a rented apartment. When determining your maximum budget, however, you must take into consideration your financial situation as well as fulfil the requirements of mortgage lenders. Here are some rules of thumb.
Anyone who wants to take out a mortgage needs 20 per cent equity participation. Accordingly, the property's purchase price may be at most five times the amount of your equity participation (e.g. with equity participation of CHF 120,000, a property worth CHF 600,000).
Regarding your equity, it can come from your own savings, proceeds from the sale of securities as well as loans taken against contributions to your Pillar 2 (company pension) and Pillar 3 (private retirement) plans. You can also include a loan from family members or acquaintances, a gift or take an advance on an inheritance.
Rules for affordability
A rule of thumb says that the annual financial load from owning a home cannot exceed one-third of your gross income. Banks use this calculation to check whether you can afford a home and whether your application for a mortgage loan can basically be approved.
Rules of thumb for housing expense
With equity participation of 20 per cent, you can estimate roughly 6 per cent of the purchase price for annual housing expense including interest on the loan, maintenance and repayment on the debt. In other words, purchasing a home for CHF 700,000 results in annual expenses of roughly CHF 42,000.
Comparison of gross income to purchase price
Here are a few examples at a glance (in each case, the first number is disposable gross income, the second is the maximum purchase price of the home):
CHF 80,000 > CHF 440,000
CHF 90,000 > CHF 500,000
CHF 100,000 > CHF 555,000
CHF 110,000 > CHF 610,000
CHF 120,000 > CHF 665,000
CHF 130,000 > CHF 720,000
CHF 140,000 > CHF 775,000
CHF 150,000 > CHF 830,000
To calculate these for yourself, divide your gross income by 3; divide the result by 6 and multiply that result by 100; now you have the maximum purchase price.