Guide to financing for buying and renovating your home in Salento
If you are thinking of buying a house in Salento and need financing, there are some essential steps that will help you navigate the process smoothly, allowing you to achieve your goals.
First of all, it is important to carefully assess your budget and the total costs of the purchase. This means determining how much you are willing to spend on the house itself, but also considering all the additional expenses that often accompany a real estate purchase: from notary fees to taxes, from real estate agency commissions to any renovation work. Having a complete picture of these costs will help avoid surprises and plan your finances realistically.
Next, you need to learn about the different types of financing available to choose the one that best suits your needs.
The Mortgage
If you don't have most of the amount needed to purchase the property, you can apply for a mortgage from a financial institution. This is a financing contract through which the beneficiary (the one who applied for the mortgage) obtains the amount that will allow them to purchase the desired property. The borrower commits to repay the obtained amount to the financial institution, plus any interest, through a certain number of installments, whose amount and duration are defined by the amortization schedule accepted at the time of signing the contract.
All mortgage contracts include some essential elements: the chosen interest rate, the duration, the amortization schedule, and any additional guarantees besides the mortgage.
How much money should you have in the bank to apply for a mortgage? To choose the financing option, you first need to know the cost of the house and, therefore, the amount you need to obtain from the bank to complete the purchase. However, keep in mind that the maximum loan amount you can obtain is up to 80% of the property's value; you must have the remaining 20% available. Some institutions also offer mortgages up to 100% of the property value, but under more onerous conditions. Moreover, they require the customer to provide additional guarantees besides the mortgage.
The general rule of Italian banks is that the mortgage installment must not exceed 30% of the applicant's disposable income. If the mortgage is co-signed, the combined income of both applicants is considered. For example, with a salary of €1,200 per month, considering the 30% rule, the maximum monthly installment would be around 400 euros.
There are different types of mortgages based on the applied interest rate. Specifically, in a "fixed-rate mortgage," the interest rate does not change throughout the loan term, and the installments always remain the same. In a "variable-rate mortgage," the installment varies according to the interest rate trend, which is, in turn, linked to a market parameter. Therefore, the amount payable each month can fluctuate. Then there is the "mixed mortgage," which allows the borrower to switch from a fixed rate to a variable rate and vice versa. There is also the "capped mortgage," where a maximum limit is set beyond which the installment cannot rise. This way, from the outset of the amortization schedule, the borrower is guaranteed that the installment cannot increase to unaffordable levels over time. The fluctuation of the interest rate, which can rise or fall over time, may cause the mortgage amortization schedule to lengthen or shorten. Finally, there is the "introductory rate mortgage," where the bank and the client agree on a reduced rate for an initial period. Once this period expires, the current fixed or variable rate will be applied.
The amortization schedule is how the mortgage loan will be repaid to the bank. You can choose between a "French amortization schedule," which is the most common and provides that interest payments decrease over time while capital payments increase. Therefore, in the first installments of the mortgage, the interest payments will be higher, and the capital payments will be lower. The installment remains constant for the entire duration of the mortgage. There is also a "growing installment schedule," where the installments increase in amount every month. The "free amortization schedule," where the installments consist only of the interest payments, and the capital can be repaid within predetermined deadlines. As the repayments occur, the interest payments are recalculated. Lastly, there is the "fixed-rate and variable-duration schedule," where the installment remains constant, but interest rate variations determine the extension or shortening of the repayment plan.
Therefore, the amortization schedule will also determine the duration of the mortgage installments, from 5 to 30 years, and some banks go up to 40 or even 50 years.
When a bank grants a mortgage, it requires a mortgage lien on the house as collateral. In practice, the mortgage allows the bank to have two rights on the property: the right to take possession of the house if the mortgage cannot be repaid and the right to obtain the money from selling the house before other creditors. This way, the bank protects itself in case of non-payment or delays in mortgage installments. The mortgage is formalized by a notary and registered in the Real Estate Registers. Even with a mortgage on the house, you remain the owner and can continue to use it as you wish.
There are different types of mortgages depending on the type of real estate operations the customers need to undertake. Alongside the classic mortgage for purchase, there is also the mortgage for purchase and renovation, which in a single solution provides liquidity for both buying the house and carrying out the necessary works. This mortgage is essentially divided into two parts: one part is intended for the purchase of the primary residence, while the other is intended for the payment of the works. The first part is calculated based on the property's value, while the second part is based on the work estimate. The disbursement of money occurs in various phases: at the time of purchase and based on the progress of the works.
Not to forget the completion of construction mortgage, also called a building mortgage, granted by banks up to 80% of the cost required for construction to provide liquidity for the completion of the works. The duration is variable, averaging 30 years, and the conditions are different from those of a classic mortgage. It does not involve the complete disbursement of the loan in a single tranche but progressively depending on the progress of the works, and the documentation and guarantees required are greater than for other types of mortgages.
The Loan
Another form of available financing is a loan. It can be used to pay for current house expenses or renovation, but rarely for the actual purchase of the property.
It does not allow for the use of the tax benefits provided by financial law for those buying a primary residence and has a shorter duration than a mortgage (usually around 48/60 months).
It involves a shorter process for the request and approval, and it often takes just 15 days to obtain it. It deals with smaller sums than mortgages and requires real guarantees, such as a mortgage on the property, to cover the financing.
It is almost always granted in the form of a fixed-rate loan with installments and interest.
Mortgage or Loan?
Depending on your needs, you must evaluate whether they can be met with a mortgage or a loan.
The Case of Home Renovation
It is true that we almost always face a mandatory choice between a mortgage and a loan. However, in some cases, it is possible to freely choose between the two options. This is the case for renovations with an amount ranging between 30,000 and 70,000 euros.
Why this overlap? Because the maximum granted for personal loans is usually 70,000 euros. At the same time, the minimum granted for a mortgage is 30,000 euros.
How to compare these two options? We have only one valid way to do it: focus on the costs of each solution. A personal loan for an amount between 30,000 and 70,000 euros usually has an APR of around 5.5%.
A mortgage, on the other hand, offers rates around 2%. Of course, one should distinguish between fixed and variable rates and based on the individual case of the applicant. In general, however, they prove to be a significantly less expensive solution. This is especially true with the very low IRS and Euribor rates currently available on the market.
Not only that, but we must also consider that, in the case of renovating a primary residence, we can take advantage of all the benefits provided by the current financial law.
The advantage of personal loans, however, is there. Although more expensive and less convenient fiscally, they are usually granted more quickly.
Therefore, everyone has their preferred solution based on their priorities and the quotes received from banks and financial institutions.
In this article, we have seen how, thanks to financing, it is finally possible to realize the dream of buying and renovating a house in Salento, even if you don't immediately have all the necessary funds. With a mortgage or a loan, you have the opportunity to turn your dream of having a home in this beautiful land into reality, adapting it to your needs and style.
Bail-out vs bail-in
Why should you choose the investment of the brick?
A rule that entered into force on 1 January 2016 also in Italy, after the Chamber approved the "European delegation law" with (270 votes in favor, 113 against and 22 abstentions), provides that banks in default can draw from the accounts currents exceeding € 100,000.00 of account holders, including shares and bonds from customers - savers. This means that the bail-out, that is, the external bailout through the public coffers, is replaced by the bail-in, that is, the bailout of banks by drawing on internal resources. It is unacceptable to think that investors and shareholders can no longer rely on the concreteness of banks. From this it follows that investing in brick is the safest way to make a long-term investment.
IS BUYING A HOUSE A BARGAIN?
The answer is yes.
The markets today are not in good condition, also given last year's statistics which see the decline of 2.5% (according to the brokerage firm Tecnocasa), but thanks to the depreciated properties, investors can now deposit their savings in this type of market which is constantly evolving. In central and southern Italy at the moment, brick is considered a safer investment. The ascent towards an interest-bearing real estate market will be slow and not without its pitfalls, but it is expected that this year and the next year the sale will increase.
Archeology of Salento: the hinterland
It is enough to identify Salento on any map to observe its geographical centrality within the Mediterranean Sea, universally recognized as the cradle of all Western civilization; observing the position of the Salento peninsula we immediately understand how this has been, over the centuries, an almost obligatory passage for the movement from east to west that characterized the history of ancient peoples already in the phases preceding the Greek and Roman eras. Starting from this consideration, it is easy to understand how the Salento area has been over time first a landing place and then a home for many peoples during their historical adventure, but what our adventurous predecessors left as a testimony of their life and struggle for the conquest of one's own identity? There is still much to see and for convenience and ease of reading we will tell you about it in two different posts on this blog: this one, dedicated to the Salento archeology of the hinterland and the next which will be dedicated to the archeology of the Salento coast.
The first appointment is on what is geographically defined as the "Messapian threshold", that is the splendid town of Ostuni, considered the northern limit of the Salento peninsula. The local Museum of Preclassical Civilizations houses the remains of Delia, also known as "the Woman of Ostuni", a hominid whose remains were discovered in October 1991 by the palethnologist Donato Coppola, in a cave at the local archaeological park. The remains date back to about 24,000 years ago, but the importance of Delia is given by the fact that together with it, or rather in her womb, the remains of a fetus in the terminal phase were also found, and therefore Delia is still today the oldest mother of which history has direct knowledge.
The journey continues "in the feminine" with the Venus of Parabita, two statuettes from the prehistoric era, found in 1965 by the team of prof. Giuseppe Piscopo at the local Grotta delle Veneri, which represent two pregnant women hugging each other: this type of works of art are called Paleolithic venus. The statuettes are carved from horse bone and have an age of 12,000-14,000 years. They are kept at the MARTA (National Archaeological Museum of Taranto).
Going up the thread of Salento history it is necessary to face the Messapian period. The Messapi were a population that in the classical era occupied a large part of the Salento peninsula since their arrival, dated around 700 BC. until the Roman conquest of the whole Salento area which took place around 260 BC. Their origin is uncertain, but the most plausible hypotheses consider them a union between the Illyrian and Cretan people, who met in the Salento area during their explorations towards the West. Speaking of the Messapi, if you want to know more about their history, it is essential to take a walk in the "Parco dei Guerrieri", a site brought to light in 1981 after the works by the University of Salento, in collaboration with the Ecole Francaise of Rome. The park today looks like an open-air archaeological area of about 20 hectares, distributed over an even larger area that goes from the town of Vaste to the Serre di Poggiardo, the natural hills on which the first Messapi settlements were born in Salento. Recent excavations have brought to light the remains of what must have been one of the most important cities of the Messapia; the path of the ancient walls, the foundations of the city and therefore of the huts that stood there and of which a faithful reproduction can be observed right at the Park has been recovered. Countless tombs still intact have also been unearthed, with all the funerary equipment and the remains of a pagan temple.
The Romans arrive in 260 BC. as we have seen, and this time the city of Lecce flourishes, with the Latin name of Lupiae, passing from a simple military station to a real "municipium", experiencing a period of absolute splendor that coincides with that of the Emperor Marcus Aurelius, period in which it was enriched with the construction of a theater and an amphitheater and connected to Porto Adriano (today San Cataldo).
In the Middle Ages, the nerve center of the Salento area moved to Otranto, which remained so until the brief Ottoman conquest in 1480 and immediately ended the following year. Despite the brevity of the Turkish occupation, the event remains central to the identity of the town of Hydruntina, as evidenced by the impressive relics of the Martyrs of Otranto, which can still be seen today at the local Basilica of the Annunziata.