8 questions to ask yourself when purchasing a property with peace of mind
Buying a property is an ambitious and exciting project but unfortunately it comes with a lot of questions and uncertainties. In addition, these uncertainties may be heightened at the moment due to the recent increases in interest rates. In this article, we’ll talk about what questions you should ask yourself and how to answer them so that you can move forward with your project with peace of mind.
1. What is my budget?
The first step in any real estate project is working out your buying capacity. Doing this will help you to better focus your search and determine your acquisition potential, which will depend on several different factors. First of all, you need to decide how much of your own personal funds you want to put into your project. Next, you need to work out your borrowing capacity. This is determined based on your income, your profile and the particularities of your project. There are a range of calculators available online that you can use to simulate your buying capacity. You can also contact your bank directly but remember that the lender rules for mortgage loans differ from bank to bank. The choice of financial establishment is therefore very important as on top of the rates that they may offer, your determined borrowing capacity may vary greatly too.
2. How will I finance my acquisition?
As a general rule, a borrower should use their own funds to cover at least 20% of the total price of the acquisition so that they can then obtain a mortgage to cover the other 80% from a bank or another lender like, for example, an insurance. 10% of their personal funds should come from their savings and the rest should come from a withdrawal from their LPP. The amount from the LPP can also be pledged in order to obtain a mortgage for 90% of the price of the acquisition. Choosing the right financing strategy depends on a range of different factors. For example, the borrower’s age, family situation, personal projects, as well as the tax implications of the acquisition, are all taken into account. A good financing strategy is one that takes into account these different aspects not just at the moment that the loan is taken out, but also with a view to the (very) long term.
3. How can I find a property?
Thanks to the first question, you should have been able to determine your budget and define your search accordingly. List the essential criteria for your dream home and then use all the search channels available: alerts on specialist sites, social networks, personal contacts, a real estate broker, etc. You can also use a mortgage certificate to prove your solvency and reassure sellers and real estate brokers. It is a valuable asset that will help your loan application stand out against the competition!
4. How can I reduce the taxes related to my acquisition?
Becoming a property owner will have a range of impacts on your tax situation depending on the financing strategy and the method of amortization that you choose. Only amortizing part of the debt offers certain advantages for borrowers: the existing debt can be deducted from their taxable wealth and the mortgage interests deducted from their taxable income. It is also a good way to avoid rental value tax.
5. How am I covered in the event of illness or death?
Now this is perhaps one of the questions that you least want to ask yourself when imagining your life in your new home but it is an essential question. No-one is ever completely safe from a misfortune so it is important to know that you are covered in the event of illness or death, to know that you will always be able to repay your mortgage and make sure that your family is provided for. The good news is that while it is a difficult question to ask yourself, the solutions are easy to put in place. For example, you can subscribe to a 3rd pillar pension plan.
6. How can I keep my property once I retire?
It is important to remember that even when you have retired, your property expenses should not account for more than one third of your income, which can decrease by 30% to 40% once you stop working. What will happen if rates rise? Will you still be able to cover your expenses even if they double or triple or would you be at risk of losing your property? To limit the costs of your mortgage when you retire, you must think about how effective your amortization strategy will be in the long term when acquiring your property. Solutions such as including a 3rd pillar in the amortization can help you to optimise your fiscal situation with tax deductions each year while ensuring that there will be a reduction in your expenses when you reach retirement age.
7. How can I optimise my financial situation?
When purchasing a property, you often use a large portion of your financial resources so it is actually the perfect time to carry out a complete review of your overall financial situation. You can also use this opportunity to take a look at your future projects (purchase of a second home, career change, early retirement, etc.) to see if they are viable and, if they are not, to implement the necessary measures to make them a reality. The financial planning analysis is a financial check-up which includes one or more forecasts of your position on your retirement, taking your spending plans into account. It is a neutral decision-making tool which gives a clear and precise vision of your current and future financial position.
8. How to plan who will inherit my assets?
Do you know how your assets will be distributed after your death? Do the (new) legal provisions suit your situation or do you need to adapt your will to make sure that no-one is left out? There may be a significant gap between what is provided for by the law and what you want. For example, if you have bought a property with your partner but are not married, you will have to make provisions to ensure that your partner does not lose your family home after your death.
It is easy to feel a bit lost when dealing with all the questions that get brought up when buying a property. This is why here at Resolve, we offer personal and comprehensive support. We won’t abandon you once your mortgage has been signed off, we will stay by your side to guide you for as long as you need. We will be happy to explain all the consequences related to your acquisition so that you can make the best decisions with your money.
These questions are presented chronologically but you can come and talk to us no matter where you are in your project. You don’t even need to wait to find a property before starting to prepare your loan application and obtaining your mortgage certificate. Our teams of mortgage financing, pension planning and financial planning specialists are here to help you with no obligation.