Credit application: „What can I afford?“
Before making any promises to sellers or real estate companies, you should first budget thoroughly and plan well. The following article presents the most important information about making a credit application for a mortgage.
„Only rich people can afford a house.“ This is what some recent media articles are claiming. The fact is, prices for houses and condos have increased. Condominiums cost about CHF 700,000 or 750,000. For freestanding houses, shoppers have to dig even deeper.
However, this is forgetting that apart from some „hot spots,“ the market is relaxing. According to current market surveys, building land in the canton of Zurich often costs CHF 2,000 and more per square meter. In the Central Plateau or Eastern Switzerland you also will find building lots for CHF 200 or 250 per square meter (zoned residential land).
Strict requirements apply for getting a morgage from a bank today. According to the Banker Association’s current minimum standards, a customer must contribute at least 20 percent of his own savings. A certain „cash injection“ is still possible if the customer has assets in Pillar 3a or pension assets in his pension fund (PF). The following are considered as equity: money in checking and savings accounts, proceeds from securities, liquidation of a life insurance policy, inheritance withdrawal or donation and as mentioned above pension assets (PF or Pillar 3a).
Please note that according to the minimum standards mentioned at least one equity share at 10 percent of the purchase price cannot be covered by PF money. This means that at least 10 percent must be „hard“ equity (i.e. no repayable loans from relatives or friends).
Furthermore, income requirements are high. The home costs you need to budget for may not exceed one-third of your current gross income. Currently, low interest rates are not used in the affordability calculation. There is a long-term average interest rate of 5 percent. Banks consider this as a kind of „stress test“ for the mortgage.
Credit application in five steps
In essence, this process involves five steps:
Step 1: Calculate first, then buy
Therefore, before making any commitments to brokers or real estate companies, you should plan carefully and set a budget. You can find a mortgage calculator on homegate.ch. The dream object must be well manageable within your financial resources and income.
Step 2: Choose a partner
Mortgage business is very much sought after by banks and other providers today. Added to this are new channels, thanks to digitization and the Internet. Think about which provider suits you. Some lenders outside the traditional banking and finance sectors may be able to compete at short notice. However, real estate financing must be invested in for the longer term.
In the age of digitization and comparison platforms, most people are in the picture. And they are rightly price-sensitive – for example, how much does a 5-year fixed-rate mortgage cost on the effective date? Find out what current market conditions are.
Previously, you had to appear in a bank branch and introduce yourself. Now, you have the option of conveniently completing the entire process of applying for a loan and entering key data online. However, you should make sure beforehand whether online financing is more in line with the acquisition online, or whether you actually apply for and manage the mortgage online. The homegate.ch online mortgage covers this need comprehensively. It makes possible online the initial financing at the time of purchase as well as later follow-on financing or top-ups. With an online transaction, the customer benefits from advantageous conditions and an efficient process. If the customer has all object data and documents ready, the credit application can be recorded in about one hour.
Step 3: Choose the mortgage model
The interest you will be charged and the extent to which the financial burden may fluctuate over the years depends on your mortgage lending strategy. In most cases, one differentiates between the „safety-oriented,“ „balanced“ and „dynamic“ variants. If you attach great importance to planning and security, you will be able to opt for fixed-rate (security-oriented) mortgages. Those who want to and can take on slightly higher risks usually will add money market or Libor mortgages. These mortgages are usually low-interest, but associated with higher risk of fluctuations. Inasmuch as the reference rate Libor will no longer be available as of 2020, the future is still open for such financing.
Step 4: Submit a credit application
A credit application is a formal matter. Bank’s relevant departments are required to examine all documents very carefully. Therefore, you have to plan enough time for this process and have all the documents ready. The most important points for your credit application:
- Passport or identity card.
- Documents showing your income and wealth (tax return, salary certificate, pension fund statement, insurance policies, proof of savings accounts and securities, etc.)
- More precise description of the use purpose and indication of the desired amount of the loan.
- Current debt collection excerpt.
- Detailed documents showing the property or condominium: location and address, living space, building specifications, land register extract, cadastral plan, building insurance documents, property photos and plans, etc.
- In some cases, additional documentation and clarifications are required. In the case of condominiums, supplementary evidence may be requested, such as the condominim ownership deed, floor plans, value ratios or condominium association rules.
- Comment on homegate.ch online mortgage: The customer must show the original ID or passport. But that can be done for example via the SBB. Therefore, it is not mandatory to appear at a bank counter. For the rest of the documents, copies are sufficient.
Step 5: Submitting the credit agreement
Another milestone is preparing the loan agreement. In parallel, you must have your own agreed funds available. There are still some formalities to consider:
It is only based on this information that the bank issues the irrevocable payment promise for the purchase. This important document is requested by the seller in the context of signing the purchase contract and public certification. Once the purchase contract is legally signed, and when you are registered as an owner in the land register, does the purchase of your dream object become a fact!