What it is: the mortgage for the purchase of the first home is a loan that allows you to have a certain amount of money intended exclusively for the purchase of a first home that can be both new and old. As the name implies, this type of loan is not intended for the purchase of second homes or holiday homes, but only for the home which will represent the applicant’s home and residence.
What it foresees: since it is granted for the purchase of the first home, this type of mortgage has reduced interest rates, especially if the person making the purchase is under 35 years of age. It is not uncommon, however, that even those who exceed this age limit can benefit from a very low fixed or variable rate, compared to personal or finalized loans.
Requirements for obtaining a mortgage for the purchase of the first home
In addition to being of legal age and having residence in Italy and given that it is a long-term financial transaction, to obtain a mortgage intended for the purchase of a first home, you need a stable and high enough income to allow you to repay the installments without too many difficulties. Well, if you think you meet these requirements, we can proceed and see together how a mortgage works, how to simulate the amount of an alleged installment and how and based on what to choose between a fixed rate or a variable rate mortgage. Enjoy the reading!
List of documents and requirements:
- Documents that attest to income, if you have other loans in progress and buy the first home with your wife, the bank may ask both of you to take out the mortgage.
- The first home loan is granted to those who have a job with a permanent contract, to self-employed workers and to self-employed professionals with bank history and with at least 2 tax returns that attest to creditworthiness in the years preceding the request.
- The documentation of the property you intend to purchase, in particular: technical appraisal, purchase proposal between private individuals or through an agency.
- Finally, if you do not have an account with the bank to which you are applying for the mortgage, you will surely have to open one in which to pay the monthly installment.
How the First Home Mortgage works
The structured mortgage for the purchase of the first home has a similar conformation in all banking institutions, although sometimes there may be specific benefits, such as those that exist for the first home loan dedicated to young people. In general, the bank can finance a maximum of about 80% of the value of the property that is about to be purchased. The remaining 20% instead must be covered by the mortgage applicant.
When we talk about mortgages paid with 100% of the amount for the purchase of the first home, we generally refer to those accessible only to young people under the age of 35. In fact, in order to facilitate their purchase, some banks offer them sums equal to the entire value of the home they are about to purchase.
What if the house you buy is old and needs renovation? In this case, banks offer the so-called mortgage plus restructuring. This form of financing allows the applicant to obtain 80% of the purchase value of the property and in addition, 80% of the budgeted amount for the renovation works is also obtained.
Applying for the first home loan and disbursing the loan is not as fast as getting a personal loan. In fact, as long as the documents are made, the bank’s approval and the loan are awaited, it is possible that this will be granted even with a waiting period of more than thirty days.
How and based on what to choose the best interest rate for you
The choice of the type of mortgage is generally between a fixed rate or a variable rate, but which one to choose between the two? The variables in the choice of one or the other loan can be complex and often a suggestion is asked from the bank that disburses the loan, but one must always keep in mind that the same in that case is in conflict of interest, therefore delegate that decision the institution providing the loan is not the wisest thing to do.
In principle, the fixed rate mortgage is the one that is recommended the most because it does not vary over time. The fixed rate mortgage in fact provides for an installment that remains stable throughout the loan period and therefore allows you to plan the repayment plan on a certain basis – the fixed rate – as you are sure of the monthly sum to be paid to repay the loan.. However, certainties come at a cost. One of the disadvantages of the fixed rate is that this form of financing usually has slightly higher rates than the variable rate, but despite this, it is worth it, especially if the interest rates are as low as in recent years.
As regards the variable rate mortgage, this essentially provides for an installment that precisely varies over time and therefore the same is based on a different calculation: the principal portion is divided for the months of the duration of the mortgage, while the interest rate changes every month, based on the Euribor interest rate.
So what happens? In practice it happens that: one month you could pay an installment of 500 USD and the next month of 350, the installment varies continuously, based precisely on the Euribor index. An example? Here is today’s euribor index. These sudden changes can be difficult for those with a fixed salary to sustain. But what is the advantage of this financing? Many choose the variable rate because it allows you to obtain the mortgage with an overall interest rate significantly lower than the fixed rate mortgage.
In any case, even if you have a fixed salary, today you could still choose to rely on the variable rate thanks to an option that imposes a maximum ceiling, beyond which the installment cannot go up. Let’s take a practical example: suppose that the installment calculated at the beginning is 400 USD, the bank can set (even with the variable rate) that this does not rise above 500 USD. In this way it is possible to manage the variable rate even with a fixed salary. This solution could be very interesting as you can try your luck without risking – in case the rates increase significantly – to find yourself with a monthly installment too high to sustain.
Calculation of the mortgage payment
As we mentioned for the first home loan installment calculation, you must first choose between the fixed or variable rate mortgage, but then there are many other aspects to consider such as: what is the sum financed, how old are you? decided to pay the mortgage, in which bank did you choose to apply for the loan and what are the interest rates proposed.
Today many banks to allow the customer to make a quote before making an appointment, choose to set up a first home mortgage simulation system on their website. The simulation allows you to know more or less what the monthly cost of the installment and the total interest will be based on the amount financed and the years. Of course the longer the years the greater the interest payable.
So before choosing, we advise you to do several mortgage simulations or requests for a bank quote, in this way you will be able to find out which is the best lender for applying for a first home loan.
Luxury home? Only a second home loan is possible
The second home mortgage is provided primarily for all those who already own a property. But not only! In fact, you need to know that there are also some categories of properties that do not fall into the first home loan and therefore even if you do not have other real estate properties, you must still take out a loan for the purchase of the “second home”.
The properties that are not included in the facilities provided for the first house are the luxury apartments and villas which have a surface area of over 160 square meters. In addition, all houses that are equipped with luxury elements such as swimming pools, sports fields and other extra complements cannot be purchased with the first home loan, but only with the funding provided for the second houses.
At the time of the mortgage application, in fact, it is mandatory for the borrower to bring the documents attesting to the characteristics of the home to the bank, in these it can be found what their cadastral class is, if this is included in luxury properties, you can buy it with reduced taxation, but you will have to pay it as expected for the second homes.