What is the maximum price I can pay for my new home?

The housing issue is complex in every aspect. However, one of the most difficult points is the price of the house, the expenses involved, and the financial capacity to afford it.

For many, buying a home is difficult, and for others, making the monthly payments later becomes a challenge. Therefore, it’s essential to have as much information and confidence as possible before taking the step of buying a home.

Why is it important to set a maximum price for buying a home?

The price of a home is one of the main factors to consider when making a decision.

Furthermore, if you have decided to take the step, it is because you are excited about owning a home, you believe it is a good time to do so, and you have some savings.

If you see a stable future and want to take the plunge, you need to be clear about the price of the home you can afford. To do this, you must consider several factors that vary depending on your specific situation.

What to consider to know what kind of housing you can afford

To calculate the maximum price of the home you can afford, you have to consider your savings, monthly income, debt ratio, and other factors.

Savings for entry

We start from the premise that most people need financing to buy a home.

Banks typically finance up to 80% of the property price. Therefore, at least 20% of the price is needed for the down payment.

So, if a property has a sale price of 200,000 euros, the bank finances up to 160,000 euros and the buyer must have a minimum savings of 40,000 euros.

If you do these calculations and don’t have the necessary amount for the down payment, you won’t be able to afford the property. Therefore, this calculation will allow you to determine the maximum price your new home can have.

Monthly payment capacity

In addition to savings, you also need to be able to afford the monthly mortgage payments.

The debt ratio recommended by all financial institutions should not exceed 30 or 35% of net income.

For example, if you earn €1,000 per month, your mortgage payment cannot exceed €300 or €350 per month. However, this can be more complex if you have other loans.

Other factors to consider

In addition to achieving the above objectives, the following should be considered:

Purchase and sale expenses. Keep in mind that you will also have to pay an additional 10% to 15% in expenses and taxes.
Job stability. Your employment status, seniority at the company, and sector of employment are factors that banks value.
Type of property. Financing may differ for first homes and second residences.

Examples of calculating the maximum price for buying your home

To find out the maximum price your home can have, you must add 80% of the price granted by the bank, 20% savings you contribute, and 15% of expenses.

Let’s look at some examples:

What kind of house can I buy if I earn 2,000 euros?
- Monthly salary: 2,000 euros.
- Savings: 77,000 euros.
- Age: 33 years.
- Mortgage years: 30.
- Mortgage amount: 190,000 euros.
- Maximum housing price: 237,000 euros.
What kind of house can I buy if I earn 3,000 euros?
- Monthly salary: 3,000 euros.
- Savings: 86,600 euros.
- Age: 55 years.
- Mortgage years: 20.
- Mortgage amount: 216,500 euros.
- Maximum housing price: 271,000 euros.
What kind of house can I buy if I earn 4,000 euros?
- Monthly salary: 4,000 euros.
- Savings: 144,000 euros.
- Age: 32 and 37 years.
- Mortgage years: 30.
- Mortgage amount: 360,500 euros.
- Maximum housing price: 451,000 euros.

Tools for calculating the housing you can afford

Although the patterns are applicable in all situations, there are tools that can help with the calculation:

This way, it will be easier to get the calculation right and you won’t have to spend too much time doing the math.

Knowing what kind of home you can afford is crucial for making the purchase with confidence. You should have at least 20% of the sale price saved, plus approximately 15% for closing costs. Your monthly mortgage payment cannot exceed 35% of your income, so it will largely depend on your monthly earnings.

Further information

This article is part of our service Real Estate Lawyer in Spain. Visit this section where you will find all the useful information on this topic, including a complete guide on How to buy a house in Spain.

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