7 tips to prepare before applying for a loan.
Thinking about buying a house or taking out a mortgage with a bank but don't know where to start? How much can you borrow for, and how should you prepare for the loan application?
This guide will help you understand the basic steps of buying a house and the mortgage process, allowing you to prepare in advance. Knowing this will help you assess your ability to repay the mortgage, build a good financial history, and increase your confidence in loan approval.
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1. Understanding Your Borrowing Capacity and Monthly Payments
A rough calculation of the amount you can borrow for a house can be done using the formula:
(Monthly Income) X (60 times your income) = (House Price You Can Borrow For)
For example, an income of 30,000 baht per month X 60 = 1.8 million baht, which is the minimum loan amount you can borrow. Some banks may adjust the income-based loan amount depending on their loan approval criteria.
However, this amount assumes you have no existing debt. Therefore, you must also consider your debt-to-income ratio, or DSR (Debt Service Ratio), which generally allows borrowers to have debt obligations of 30-40% of their income. The formula is:
(Monthly Income) X (30% or 40%) = (Ability to repay the mortgage)
For example, a monthly income of 30,000 baht X 30% or 40% = 9,000-12,000 baht.
This includes all existing debts, such as car payments or mobile phone bills. Appliances, etc. So, assuming a monthly car payment of 8,000 baht, the remaining ability to repay a mortgage would only be 1,000-4,000 baht. To calculate how much you can borrow for a house, use this formula:
(1,000,000 ÷ 7,000) x (Ability to repay mortgage) = (Amount you can borrow)
For example, (1,000,000 ÷ 7,000) x 4,000 = You can borrow 571,429 baht for a house.
*This assumes the borrower has a 40% debt burden.
Once you know your mortgage repayment capacity and the price you can borrow for a house, you can then choose a suitable house that meets your needs and budget.
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2. Saving for a Down Payment
While searching for a house, another important step is saving for a down payment on a house or condominium.
Although the Loan-to-Value (LTV) ratio regulations for housing loans stipulate that buyers of houses or condos priced below 10 million baht for their first purchase can borrow the full value of the collateral, or 100%, without a down payment (subject to each bank's approval),
however, for purchases of houses or condos priced below 10 million baht but for the second or third purchase onwards, a minimum down payment of 10-30% is required.
For houses and condos priced at 10 million baht or more, the first purchase requires a minimum 10% down payment, and subsequent purchases require a minimum 20-30% down payment.
Many housing projects offer monthly down payment installment programs while the project is under construction (banks will release loans once the property is completed).
For example, a 5 million baht detached house (the second purchase) requires a 10% down payment of 500,000 baht, payable over 10 months, averaging 50,000 baht per month.
This relatively high monthly down payment... This means you'll need to prepare by saving a portion of your money beforehand to use as a down payment for a house.
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3. Maintain a healthy bank statement.
The next part of the house buying process involves the documents required for loan applications. Banks will request to see your bank statements for the past six months. Therefore, it's crucial to maintain a consistent balance in your account during these six months; avoid withdrawing all the money. If you have supplementary regular income, work as a freelancer, or are a vendor receiving payments on a per-transaction or daily basis, ensure these incomes are deposited into your account regularly as well.
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4. Pay your debts on time.
Another thing banks will check is your credit history, which includes your payment history for the past three years. If you have missed payments within these three years, commonly referred to as being "blacklisted," which means you have a poor payment history or have not been able to make payments as agreed, you are considered a high-risk borrower.
Therefore, if you are taking out any loans for purchases or paying credit card bills, you should always pay on time. Being blacklisted could completely reject your house loan application.
Anyone considering buying a house can check their credit bureau report through various channels offered by the National Credit Bureau.
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5. Pay off all existing debts before applying for a house loan.
This is a follow-up to point 1. Having existing debts will reduce your loan amount for a house purchase. Therefore, any debts that can be paid off should be done immediately before applying for a house loan, even if there is not much time left. For example, mobile phone bills. Even though you only have 3 months left to pay off your mortgage, at the time of applying for a house loan, the bank will consider you to have this existing debt.
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6. Cancel Unnecessary Credit Cards
Many people hold more than one credit card because of the tempting offers from banks. Even if they don't use them often, banks will perceive this as a sign of increased debt accumulation later on, lowering the chances of house loan approval. Therefore, before applying for a house loan, you should cancel most credit cards, leaving only 1-2.
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7. Prepare Documents: Salary Slips, Employment Certificates, Proof of Extra Income
The final step in the house buying process is preparing the documents for the loan application. Particular attention should be paid to proof of employment and income, such as salary slips and employment certificates, which may require approval from your employer, and some approval processes can take time. Preparation beforehand is crucial for a smooth house loan application process.
If you have prepared your finances and documents thoroughly in these 7 steps, you are ready to secure a loan for your beautiful house.
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Thank you for the valuable information from DD-Property.
