There are two important calculations that the lenders use to calculate the maximum that they will lend you. These are: Loan to Value percentage (LTV) and Debt-to-Income ratio (DTI):
Loan-To-Value Ratio (LTV)
This is the maximum percentage of the property value or purchase price that the bank is willing to lend. For example, if you want to buy a property for €200,000 and the maximum LTV is 60%, then you would be able to borrow a maximum of €120,000.
Debt-To-Income Ratio (DTI)
This is the maximum percentage of your monthly income that the bank will allow for you to cover all debt commitments. Each bank is different what income and what debts they will use, but it will usually use your net monthly income (after income tax is deducted) and will use all mortgages (including the new mortgage), rent and loans. Sometimes, credit card payments, maintenance and other fixed costs will be used. A 33% DTI ratio will mean that one third of your take-home pay can be used towards these repayments. For example: if you earn €5,000 a month after tax and have €1,000 a month existing mortgage and €200 a month car loan, your current DTI will be 24%. If the new mortgage costs €300 a month, then your new DTI ratio will be 30%.
Each lender will use a different calculation and different exchange rate for this affordability calculation. Together with each lender using different payments in the calculation, it can be very difficult for you to know exactly how much the lender will lend you.
When you complete our simple enquiry form, we will be able to work out how much you can borrow and it will help you budget for your purchase in Italy. This quotation is totally free and confidential.
You should also consider all the additional costs involved in buying a property in Italy.
Also, lenders will generally only offer you a mortgage up to your retirement age. This will affect the length of time the mortgage can be over and may change the monthly repayments on the mortgage. The term of the mortgage may also affect your affordability calculations.
In general the maximum LTV offered in Italy will be 60% of the purchase price depending on the loan amount, purchase price and location of the property and DTI ratios are around the 33% mark.