This article was originally published in The XPat Journal Winter 2017 Issue
It would be nice if the process of buying a house were simply a matter of “yes, I would like that one” and handing over your credit card. Though this may be the case for the top 1% wealthiest people in the world, the rest of us have to make sure we can get a mortgage, that we get the right mortgage, that we can find a house that meets our needs, that we can afford this house, and that we won’t be confronted with unnecessary surprises (claims, easement, structural problems)… to name a few issues.
For this reason, we have developed a short step-by-step buyer’s guide, aimed at preparing you for the various steps you will take when buying your new home – so that you know what to expect and can start taking the necessary measures in the right order.
When buying a home, you will have to consider the following steps:
- You contact a mortgage provider, to find out exactly how much mortgage you can take out, whereby you take into account additional expenses involved in the purchase of the home (these are discussed further on).
- You select a real estate agent, and discuss what you are looking for, what you need and what is realistic.
- If you have any special wishes regarding the property, make sure your real estate agent and the real estate agent of the seller are aware of this. If they are not, and it turns out your home does not meet these wishes, you cannot hold them accountable for it.
- You visit property.
- When you have found a home you like, you discuss all issues such as city council regulations, but also issues such as soil contamination.
- If you want this home, you can inform your real estate agent of this verbally.
- You contact your mortgage broker (or bank) again to start the official mortgage application process (which takes 4 to 6 weeks)
- Your real estate agent will contact the selling party and relay this message.
- Have a building inspection carried out. If you fail to do this and there is a problem, more likely than not, you will have lost your right to hold the seller accountable.
- Make the purchase of the house contingent upon its passing the building inspection.
- The initial verbal agreement you reach with the seller is put in writing in the preliminary purchase contract. A penalty clause is usually included in case the seller or the buyer does not meet his obligations.
- After being signed by all the parties, the preliminary purchase contract is sent to the civil law notary who deals with the transfer of the title of the house.
- A three-day ‘cooling-off’ period starts the day after the buyer receives a copy of the signed contract. During these three days, the buyer can cancel the deal without any repercussions and without having to state the reason.
- The civil law notary inspects the public registers of the Land Registry regarding mortgages and/or attachments with which the property may be encumbered.
- The transfer of ownership takes place at the civil law notary’s office by means of a deed of transfer that is drawn up by the civil law notary and signed by the seller, the buyer and the civil law notary. You will receive a draft of this deed and of the mortgage deed beforehand. Also your agent will receive these and check them.
- The agent will check together with you to see whether the house has been vacated, and is in the agreed condition.
- The civil law notary takes care of the financial settlement of the transaction and ensures that the deed of transfer is entered in the public registers (Land Registry).
- The transfer then becomes official and you receive the keys of your new house.
The deposit on the house is generally 10% of the purchase price – due approximately five weeks after the deal has been made – and arranged by the mortgage advisor or the bank itself by means of a bank guarantee issued by a Dutch banking institution. This deposit is to be paid to a civil law notary and can be part of the financing agreement reached for the purchase of the house.
The purchase transaction will cost you an additional approximately 5-6%. These include:
- appraisal fee (expense for having the house officially appraised in order to secure a mortgage)
- notary costs mortgage deed (hypotheekakte)
- cadastral registration fee mortgage deed
- cadastral investigation fee
- administration fee mortgage deed
- structural survey of the house
- bank guarantee fee
- mortgage commission fee (paid either to the bank or the broker)
- National Mortgage Insurance – Nationale Hypotheek Garantie
- transfer tax
- estate agent fee
- notary costs for the transfer deed
- interpreter fees.
The costs listed below are tax-deductible and can be declared (one-time) on your income tax return:
- notary costs mortgage deed (hypotheekakte) (VAT/BTW)
- mortgage commission fee (paid either to the bank or the broker)
- cadastral registration fee
- cadastral investigation fee
- appraisal (taxatie) fee
- administration fee (afsluitprovisie) mortgage deed
- bank guarantee fee.
If you need to obtain a mortgage to finance the purchase, any purchase agreement should be made subject to financing. If necessary, other resolutive conditions should be part of the agreement, such as (if applicable) being able to obtain a permit to occupy the real estate, or even more importantly, the option of having a constructional survey carried out.
“Those who own a house and use it as their principal place of residence have to report a certain related amount on their income tax return”
Prices and conditions quoted in the listings for sales and rentals are usually negotiable. In close consultation with the agent, price and conditions will be negotiated with the agent representing the owner. These negotiations can consist of several rounds of verbal bidding and counter-bidding.
Mortgage Expenses Deductible
The most important reason to buy real estate – instead of renting it – is most probably the fact that interest paid on a mortgage is deductible when you use the house as your principal place of residence. The maximum rate of deductibility is now 50%, but this will decrease by half a percent per year, until it reaches 38% in 2041.
Furthermore, mortgage interest is deductible over a maximum period of 30 years, provided the mortgage provides for monthly redemption payments (straight line or annuity), while – starting in 2018 – the maximum amount is 100% of the purchase price. This means that buyers can no longer completely finance the additional expenses related to buying a house by means of the mortgage.
If you decide to take out a higher mortgage than required to finance the purchase of the house itself or for its reconstruction, the related part of the mortgage interest will not be deductible. Other expenses related to the house (such as insurance premiums and, of course, capital repayment) are never deductible.
What Type of Mortgage?
You should seek proper advice on the type of mortgage that is suitable in your situation, particularly in view of the limited period of time during which you may need the mortgage. Do not forget to inform the bank if you are benefiting from the 30%-ruling. If the mortgage is linked to a capital insurance, you may be faced with additional tax consequences. Be sure to get expert advice!
Deemed Rental Value and WOZ-Value
Those who own a house and use it as their principal place of residence have to report a certain amount – related to the home ownership – on their income tax return. This amount is a percentage of the value of the house, and is called the eigenwoningforfait (or deemed rental value). The eigenwoningforfait based on the official value of the house, also known as the WOZ-value, which is determined every year by the municipality. Every year, the owner receives a so-called WOZ-beschikking (WOZ-decision), ‘confirming’ the value of the house, which is used as a basis for determining a number of levies and taxes and has been created in order to rule out the possibility of arbitrariness. The general applicable rate of the eigenwoningforfait is 0.75% of the WOZ-value (a higher rate applies if your house is worth more than € 1.06 million).
The balance of the deemed rental value and the interest can be deducted from your income. You can only deduct your own share in the mortgage.
Preliminary Tax Refund
You can receive a tax refund on the mortgage interest deduction every month by requesting a preliminary negative tax bill from the tax authorities. This is done by means of a special form. The tax authorities will then deposit the refund directly into your bank account.
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