How to Get a Property Loan: What You Need to Know

You want to obtain a property loan to carry out your real estate project, but you don't know how to do it?

Investing in property generally requires significant financial resources.

A property loan is therefore an extremely powerful financial lever for future buyers.

However, there are certain conditions for obtaining a property loan.

How to get an agreement from the bank to finance your future house or flat ?

What you need to know before applying for a property loan

The complexity of property financing can be a barrier to getting started. The basic concepts must be understood in order to make the best decision when signing the loan. Indeed, borrowing from a bank is not a trivial matter and commits you on the more or less long term.

First-time buyers

As a new buyer, you are likely to be considered a first-time buyer. For this reason, whether you are single or a couple, the only condition is that you do not own your main residence. So, if you already own a second home or a rental property, this will have no impact.

Indeed, borrowing from a bank is not a trivial matter and commits you on the more or less long term.

Borrowing capacity

Borrowing capacity is also known as repayment capacity, and for good reason. Your borrowing capacity determines the amount of your loan and the maximum monthly instalments that you can repay over a given period.

It is calculated according to your income and to the household expenses; as well as to your personal situation: single or as a couple, tenant or owner.

The difference between your fixed costs and your income determines the debt ratio. Most financial organizations do not want this to exceed one third of the borrower's monthly income, i.e. 33%, in order to avoid any risk of over-indebtedness. However, depending on the case, they may make an exception to this rule in order to grant a loan.

Credit rates

The interest rate is another issue when talking about a property loan. It determines the amount to be repaid in addition to the amount granted by the lending institution.

The interest rate can be fixed, i.e. it is known in advance and cannot be changed afterwards.

It can also be a variable interest rate, which, as the name suggests, will not be the same throughout the term and may be revised upwards or downwards. At the time of signing the loan offer, a variable rate is usually lower than a fixed rate of credit over a similar period. This is why many borrowers prefer it.

That said, with interest rates relatively low in recent years, variable rate borrowing is no longer as attractive as it"https://www.generation-credit.lu/post/quel-est-le-taux-d-interet-moyen-d-un-credit-immobilier-au-luxembourg">fixed rate of 1.25% (link to be replaced with your partner's).

Loan insurance

A loan insurance is typically required by Luxembourg banks. It is an outstandingbalance insurance that covers the subscription of a loan. The borrower guarantees the bank that the loan will be reimbursed in the event of death, loss of employment or any other situation that, otherwise, might prevent the loan from being properly repaid. Loan insurance can cover all or only part of the monthly payments.

It represents an additional cost but is essential for two reasons:

To reassure the bank and obtain a loan more easily
To protect your family against a life accident

Conditions for obtaining a property loan

Financing a property project in Luxembourg requires potential buyers to put together a solid file in order to hope to obtain bank financing. There are several conditions for this:

Proving that you have a stable professional situation

To obtain a loan in Luxembourg, it is best to have a long-term employment contract. This is a guarantee of solvency for the banks, as it demonstrates your ability to pay the instalments each month while maintaining a sufficient amount of money to meet your needs.

Proving good management of your bank accounts

It is obvious that keeping your accounts up to date will help your banker to agree. Not being overdrawn too regularly, knowing how to save part of your salary and not having taken out various loans will maximize your chances of getting a loan.

Having a personal contribution

Although this is not compulsory, it is strongly recommended that you present the bank with around 10% of the amount requested. This will prove your ability to save and will support the seriousness of your loan application.

As you will have understood, taking out a property loan means getting into debt over the long term. It is therefore advisable to take all the necessary precautions before submitting your application to the banks.