Let’s Understand It:
Buying a home is a dream for many, but it’s also a complex process that involves various costs and procedures. One of the fundamental components of this process is the down payment, or the initial payment that we need to have ready before acquiring a property. In this article from Living Sitges, we will explore in detail what the down payment is, its purpose, how it is paid, and how much we need to save to cover this essential part of purchasing a property.
What is the Down Payment for Buying a Home?
The down payment for a home is the percentage of the total price of the property that the buyer must pay from their own savings. This payment is crucial because, generally, financial institutions do not cover 100% of the property’s value through a mortgage. Typically, banks finance up to 80% of the property’s appraised value. Therefore, the buyer must have the remaining 20% of the property’s price available in cash.
Practical Example
Imagine we are interested in buying a flat valued at 300,000 euros. In most cases, the bank will grant us a loan of up to 80% of the price, which is 240,000 euros. Therefore, we will need to provide the remaining 20% out of our pocket, which in this case is 60,000 euros. This amount is known as the down payment.
Why is the Down Payment Important?
Financial Proportion and Issuance of Mortgage Securities
The main reason why banks do not finance 100% of the property’s price is due to financial and security considerations. Mortgage loans are limited to 80% of the property’s valuation so that institutions can issue mortgage securities (bonds, notes, and participations). These limitations help maintain financial stability and ensure that risks are controlled.
Buyer’s Financial Commitment
Additionally, the down payment serves as a sign of the buyer’s financial commitment. Saving 20% of the property’s value demonstrates to lenders that the buyer has the ability to manage their finances responsibly, which is crucial for mortgage approval.
When is the Down Payment Made?
The Deposit Agreement
The down payment is not made all at once. In fact, a part of this payment is often made at the beginning of the purchasing process through the deposit agreement. This agreement is a preliminary contract in which the buyer commits to buying the property and pays an initial amount as a guarantee, which will be deducted from the total down payment. According to Article 1454 of the Civil Code, if the buyer withdraws, they will lose this amount; if the seller withdraws, they must return it doubled.
The Final Payment
The remainder of the down payment is paid at the time of signing the sales agreement before a notary. At this point, the bank will issue the checks for the mortgage, and the buyer must transfer the remaining amount to complete the total price of the property. The amount paid as a deposit will be deducted from the total amount to be paid.
How is the Down Payment Made?
The down payment is made directly to the seller at the time of signing the sales agreement before a notary. This process includes the issuance of bank checks covering the granted mortgage and the balance that completes the total price of the property.
If the buyer has already made a prior payment through the deposit agreement, this amount will be deducted from the total amount to be delivered at the notary’s office.
How Much Does the Down Payment Cost?
Calculating the Down Payment
The cost of the down payment generally corresponds to 20% of the property’s value. This percentage is based on the common practice that banks finance up to 80% of the property’s price through a mortgage.
Example Calculation
If the property we want to buy is priced at 250,000 euros, we will need to have 50,000 euros, which is 20% of its value, to cover the down payment. This amount will be deducted from the total we need to pay for the property, with the remainder being financed by the mortgage, in this case, 200,000 euros.
Conclusion
The down payment is an essential aspect of buying a home. It not only represents a significant percentage of the property’s total cost but also serves as proof of the buyer’s financial ability to handle the commitments associated with purchasing a property. At Living Sitges, we understand that this is an important process, and we are here to help you navigate every step of the way towards buying your dream home.
If you are thinking of buying a home and need more information or advice, don’t hesitate to contact us. We are here to help you make your dream of owning a home in Sitges a reality!
Contact Living Sitges
For more details about buying homes in Sitges and how we can assist you on your real estate journey, visit our website www.livingsitges.com or call us at +34 931 18 57 77. We are here to answer all your questions and offer you the best possible service.
Living Sitges – Your Ally in Buying the Home of Your Dreams.