Salary is Not Enough: What the Bank Considers for a Housing Loan

Written by: Željko Morović, specialist in housing financing and financial consulting

The apartment is perfect. The location is right, the layout is good, the terrace is just what you were looking for. Price – 300 thousand euros. And only then comes the question that should have arisen much earlier: can you even afford it?

In practice, it is often seen that buyers first find a property, then start negotiating the price, thinking about the deposit and moving, and only then seriously check how much the bank can approve for them. The problem arises when the buyer has already emotionally attached to the property. They have found an apartment that suits them, perhaps already discussing the deposit with the seller and starting to plan the move, only to find out that the amount of credit they can obtain is not enough for the purchase.

That is why buyers should always reverse the order: first check their creditworthiness and establish a price range, and only then seriously start searching for a property.

Salary is Not the Only Thing the Bank Considers

One of the first questions clients ask is: ‘How much credit can I get with this salary?’ However, the salary alone is not enough for an answer. The assessment of creditworthiness includes existing credit obligations, obligations on credit cards, leasing, and allowed overdrafts. If you are a co-debtor on someone else’s loan, that obligation also affects your creditworthiness.

The repayment term, the client’s age, income, and obligations of all persons participating in the loan, as well as the credit history recorded in the OSR system, are also important. Some banks apply their own internal criteria for assessing credit risk. Therefore, two people with the same salary do not necessarily have the same creditworthiness.

Only when existing obligations and other criteria are taken into account does a realistic picture of creditworthiness emerge. That is why it is difficult to seriously plan the purchase of real estate based solely on the amount of monthly income.

The Price of the Apartment is Not the Same as the Amount of Credit You Can Obtain

Another question that buyers often underestimate is how much of their own funds they will need for the purchase. If the apartment costs 300 thousand euros, it should not be automatically assumed that the entire amount can be financed with a housing loan.

If the appraised value of the property is equal to the purchase price and the bank finances 90 percent of its value, the loan would amount to 270 thousand euros. In that example, the buyer must secure the remaining 30 thousand euros, and that amount can become a bigger problem for many than the housing loan annuity itself.

In practice, you can have a household that, with regular and stable income, can repay the housing loan annuity but does not have 30 thousand euros of their own funds to purchase an apartment for 300 thousand euros. Then the search begins for ways to secure that amount. One solution could be an additional loan, but then the buyer has not one, but two credit obligations, which further burdens the household budget.

Therefore, it is not enough just to find a way to realize the purchase. It is necessary to look at the total monthly obligation that remains after the purchase and how much room the household has left for other living expenses. A housing loan does not end with the approval of the loan and signing the contract – it is repaid over years, often decades. Therefore, the financial picture should be assessed before the purchase, not just after the obligations have already been taken on.

Before seriously searching for real estate, three things should be known: what your approximate creditworthiness is, how much of your own funds you have, and what price of real estate you can realistically afford. If the calculation shows that your price range is 240 thousand or 250 thousand euros, it makes little sense to spend months looking at apartments priced at 300 thousand euros and then only seek ways to secure the difference.