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Buying a house without savings, is it possible?

by archyw

Accessing a home is, on many occasions, an arduous and difficult task. The main impediment that most people find when wanting to acquire a property is the lack of savings necessary to give the entrance of the apartment. Financial entities are not granting loans above 80%, so it would be normal to have at least 20% of the house price in savings. However, both economic and social circumstances make this question difficult for many families.

Should you buy a home if you have nothing saved?

Buying a home is the main investment made by a family throughout their life. Often “it is the only one”, clarifies Julián Salcedo, President of the Forum of Real Estate Economists. It must also be borne in mind that this investment is of great value and its objective is long-term. It is about establishing a home, so the expert believes that “having prior savings is not only recommended, but also necessary in economic terms.”

Salcedo states that two requirements must be met before venturing into this endeavor. The first thing will be, according to the economist, “to have accumulated previous savings to face the unfunded part and the initial expenses.” In this sense, if we have just mentioned 20% of the savings, we must point out that at least another 10% will go to taxes and processing of the sale.

Secondly, the president of the Forum of Real Estate Economists points out that “there should be solvency or economic stability in the medium term to face the payment of quotas.” And it is that here it is not only a matter of not being able to pay the entrance of the apartment, but that, in the future, it can face the monthly cost that it will entail. Thus, Salcedo indicates that the lack of “prior savings means either that he lacks the economic capacity to meet monthly expenses and be able to generate some savings, or that he has a propensity to spend and a certain lack of concern for the future.”

The expert concludes that “no investment of a certain magnitude can claim to be financed exclusively with external resources.” And he adds, “a significant part, from 20 to 50%, is always required to be assumed with own resources, which determines the level of commitment of the investor.”

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Despite this recommendation, there are formulas to access a home without having savings.

Formulas to buy a home without having savings

Currently, formulas such as Help to Buy can be used to cover the lack of previous savings. These are endorsements from public entities that, according to Salcedo, “are valid options that help developers to increase the volume of home sales, and at the same time facilitate access to housing for broad sections of the population.”

The rent-to-own apartment is another good solution. With it, a purchase option fee of 10% of the property price is paid. Here the rental price is higher and, in addition, during the rental period the tenant must save to accumulate the last payment, at the end of the rental period.

For Julián Salcedo, this “is a formula that does not satisfy either of the two parties.” On the one hand, explains the expert, “the developer wants to undo his investment as soon as possible and rent with an option to buy requires him to keep it for a period that should not be less than five years, to compensate him.”

For the tenant, on the other hand, says Salcedo, “it would be interesting as long as the part of the rent discounted from the price was high, but for that to happen the monthly rent would be too high.” Therefore, finding the right balance between the two interests is not a simple matter.

Family is usually the main support

Another option is to obtain an endorsement. But of course, this is a bit risky. Normally, the guarantor is usually a relative. This will be responsible for the debt contracted with the bank, if the debtor does not pay. This figure must be solvent, which means having sufficient income. Also be able to bring financial stability.

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Along the same lines, a family loan can also be of great help when acquiring a property without savings. This, however, is usually rare. The advantage is that there is no interest and it can be lost.

Last but not least, ask for a personal loan. This is one of the riskiest options because the contractor will have to face two installments, the mortgage and the loan. By not having savings, this option can be complicated if we do not have a long-term financial solvency.

At this point, the real estate expert reflects on the need for property to always be the first option when buying a home in Spain. He also highlights the need for Public Administrations to increase “the public stock of rental housing at affordable prices”, something that he considers, “the great pending challenge”.

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