We begin with the basic conditions, which consider account our savings profile and determine the minimum income we'll need to repay the debt. A mortgage is a debt we will pay off over many years, so the credit institution has to ensure that we are at least starting from a solvent and healthy financial base.
We must have an acceptable level of income. Our income needs to be stable, and the higher the better. Banco de España recommends that we allocate no more than 35% of our income to our mortgage payments. Sharing ownership of the mortgage with the person with whom we are going to share our new home will help.
Job stability is similarly important to our income level. A stable job is a good sign. If we do not have a permanent job or haven't been with our company for long, this will set us back. Retired people and civil servants who receive a regular and fixed income always have an advantage in this regard.
A good credit history with no arrears, outstanding loans or other debts arranged with third parties also helps. Mortgages are usually granted subject to the applicant not having other obligations.
Then we have the funding limit. Credit institutions don't usually finance more than 80% of the property's appraisal value, and this falls to 70% if it is not a first home. We will need to have about 30% of the value of the property to pay the part that the mortgage doesn't cover, and also the costs of the purchase, deed and other expenses associated with the loan.
Finally, we have the repayment period over which we will repay our debt to the bank. This is usually from 20 to 30 years, although it may extend to 40 years in some cases.
In addition to these basic conditions, the mortgage terms and conditions will include other items, such as the mortgage type, the interest rate, the distribution of the costs generated by approval of the mortgage, and the other fees the bank might charge. These must always be very clear and fully understood before signing. Comparing mortgages and the freedom to choose the one we want gives us some leeway to negotiate the terms and conditions with our bank.