HomeFINANCESelling the house in divorce: 3 points to consider

Selling the house in divorce: 3 points to consider

Do you have doubts about getting a loan to buy a house, as there are still a few years left to finish your car loan? know that having more than one loan does not imply the automatic refusal of a home loan. However, if the total amount of credit installments weighs too much on the family budget, no financial institution will give the green light to your pre-approval request.

But how can you know if your car loan is an obstacle to granting credit to buy a home? We explain below what you should pay attention to. Know more other factors that influence the refusal of a home loan.

Also read: Declined home loan: Know the main reasons and what to do

Your effort rate gives you the answer you are looking for

If you are afraid that your car loan will jeopardize the approval of a home loan, before putting together the first financing proposals calculate your effort rate.

If this rate is unknown to you, know that it represents the percentage of household monthly income family member intended for payment of installments of the contracted credits.

That is, when you need credit to buy a house, the bank measures the risk of financing the purchase of your property. Therefore, all the credits that you have contracted influence the risk of future financing. And how do financial institutions assess this risk? through a detailed analysis of your profile, your income and professional situation and your rate of effort.

The effort rate is one of the most relevant analysis factors for the bank, as it indicates the feasibility of being able to support its credit installments. To get an idea, if your financial and professional situation is stable and have a effort rate less than 30%is on a good path to get the green light on your home loan.

However, be aware that an effort rate of 30% is the recommended amount for banks to grant a home loan. But this doesn’t mean that if your effort rate is higher, you’ll see your credit automatically declined. However, in these situations it may be other guarantees requested.

Also, be aware that most financial institutions do not grant mortgages to customers who have a effort rate above 40%.

Also read: How to reduce the effort rate to buy a house?

small wooden molds of houses inside a supermarket trolley, also in miniature, observed by a magnifying glass illustrate the care to be taken in an evaluation of the house

How to calculate the effort rate before asking for credit to buy a house?

Once you know that your effort rate should not exceed 30%, you must make sure that the total of your credit installments is within the recommended amount.

How is the effort rate calculated? In fact, through a relatively simple calculation. Enough add up the total number of credit installments you have, divide this amount by your household’s net monthly income familiar and multiply by 100 this value.

Effort rate = (total credit installments / net monthly income) x 100

For example, imagine that your car loan installment is 150 euros. If the installment of your home loan around 350 euros, the total amount payable of credit installments is 500 euros. If your household’s net monthly income is 2000 eurosthe formula for calculating your effort rate is:

Effort rate = (500/2000) x 100 = 25%

Still, for help you do these maths, you can use the effort rate simulator do Doutor, in which you only need to fill in the fields with the values ​​of your income and benefits.

This means that your household income able to support the two installments of credit without putting your finances at risk. At least, theoretically. After all, in addition to credit installments, there are other monthly charges, such as monthly expenses for water, electricity, gas, telecommunications, health, food, etc.

However, if your credits represent less than a third of your income, you are on a good path to a balanced financial life.

If you want to make sure that you meet the essential conditions to apply for a home loan, Doutor Finanças can help you get the answers you are looking for. we have a team of doctors specialized in housing credit who will accompany you from the beginning to the end of your process, completely free of charge.

What if my effort rate is over 40%?

In the case of your effort rate be greater than 40% can mean two things:

  • THE sum of the two installments of credit is too high for your family budget.
  • O amount you want financing to buy a house is very high for your personal finances.

Imagine that the net income of your household is 1600 euros. However, at age 20 he bought his car through a 7-year loan, and now at 25 he is paying 150 euros monthly installment.

After analyzing the market, you want to buy a property where you need a financing of 150,000 euros. Given your current age, the bank could grant you a home loan with a term of up to 40 years.

To simplify the math, let’s imagine that you have a home loan proposal with a TAN (spread + indexer) of 2.5%. In this situation, I would have a monthly credit installment of €494.67. If you add this amount to your car loan installment, the total amount of your credit installments is €644.67.

That is, your effort rate would be 40%. [(644,67/1600)x100]. Soon, you could see your home loan rejected by the bank. In this case, if you wait two years to pay off your car loan, your effort rate would drop to 31%.

And with these conditions, some financial institutions could grant you a home loan, even if they asked for some additional guarantees. In addition, it could focus on increase your income during that period or find more advantageous credit proposals, with a lower TAN.

But if you have an urgent need to buy a house, the solution may go through a lower value financing. Imagine that after a more thorough research and an analysis of several credit proposals, you choose a house where you need a housing loan in the amount of 110,000 euros with a term of 40 years. If your best credit proposal has a 2% TANwould pay monthly installment €333.11

In this case, if you add the 333.11 euros to your car loan installment (150 euros), your effort rate would be 30%, and could get the green light on your home loan.

Credit to buy home was declined? Other reasons besides the effort rate

In addition to your effort rate and income, there are other factors that influence the rejection of a home loan application. As we mentioned at the beginning, financial institutions carefully assess your profile. Therefore, they will take into account your professional situation (whether or not it is effective) and your payer history.

For example, a bank will analyze if you let your bank account reach negative values, if you had default situations or if your name appears on the Bank of Portugal’s blacklist.

Another factor that also has some weight in this decision is associated with the maturity of the credit that the customer wants according to his age. In terms of rules, the minimum age for someone to apply for a home loan is 18 years old. However, it is the maximum limit that poses the most obstacles, since at the end of the contract, the customer cannot exceed 75 years.

But, since April of this year, there are new deadlines for housing credit. These deadlines came reduce the term of a home loan for those over 30 years old.

That is, if you have less than 30 yearscontinues to benefit from the term maximum of 40 years to pay off your loan. if you have between 30 and 35 yearsthe maximum term of a home loan is 37 years. However, if you already over 35 years oldknow that, currently, the maximum term of your home loan is is 35 years old.

And why can these new rules lead to your home loan being refused? Why the shorter the term of your credit, the more expensive your monthly installment will be. Soon, your effort rate may go upif your financing has to be paid off within a shorter period than you want.

However, bear in mind that a shorter term, means your Housing credit will be cheaper, as it will pay less interest.

Also read: How can I know which credit is more expensive? Analyzing and comparing is the key

As an additional guarantee, a guarantor may be required.

Surely you’ve heard that in some people they needed to add a guarantor to their home loan for the process to be approved. And why does this happen? Because banks will not finance a property when they consider that there is a risk of default on the part of the customer. Therefore, an alternative that banks provide is add a guarantor to the credit agreement as an additional guarantee.

Basically, when a client has a higher rate of effort, an irregular financial history or even an unstable employment situation, the bank sees a higher funding risk. If there is a guarantor associated with the contract, the probability of financial institutions registering non-performing loans decreases. This is because onlyand the customer defaults, the guarantor is responsible for paying the amounts owed.  

Of course, this is a decision that must be carefully considered, as it is transferring a very high level of responsibility to a third person. Not to mention that nIt’s always easy to find someone to take responsibility for a debt that isn’t yours.

Having said that, keep in mind that it is advisable that you always try to obtain financing where it is not necessary to resort to a guarantor. But if this is not possible, remember that the guarantor remains responsible for the debt until the full payment of the credit is made.

However, if during the course of the contract you manage to improve your financial conditions, you can renegotiate your home loan and remove the guarantor from the contract. If you are unable to remove the guarantor from the home loan agreement at the bank where you obtained the financing, consider the possibility of removing the guarantor transferring your home loan to another financial institution.

Also read: 4 factors that reveal whether it is time to transfer your home loan

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