Meeting the bank about buying a home: how to prepare

Once your income, expenses, loans and your own money are gathered in one place, the bank's calculation becomes easier to understand. You can see which assumptions the purchase budget is built on, and what is still missing before the bank can take a position on a specific home.

You do not need to know every loan type in advance. But you should know your own finances well enough for the meeting to be about your possible home purchase, not about hunting for that last debt statement.

In brief

• Among other things, the bank assesses income, fixed expenses, debt, disposable income (rådighedsbeløb), net worth (formue), down payment (udbetaling) and what kind of home you want.
• Document requirements vary from bank to bank and with your finances. So ask the bank what it wants before the meeting.
• A preliminary purchase budget is not necessarily a binding loan offer for a specific home.
• Terms such as preliminary purchase approval (købsgodkendelse), loan certificate (lånebevis) and loan commitment (lånetilsagn) are used in different ways. Always read the assumptions, amount limit and validity in the document.
• The bank needs correct and complete information to be able to carry out the creditworthiness assessment (kreditværdighedsvurdering).^[1]
• Your questions should cover the purchase budget, your monthly finances, interest rates, fees, risks and the process once you find a home.
• Offers can only be compared properly when loan amount, term, repayments and assumptions are the same.

What should the bank meeting about buying a home clarify?

The first meeting is typically about three things.

1. Your finances

The bank needs to form an overall picture of:

• Income
• Fixed expenses
• Spending and disposable income
• Debt and credit facilities
• Savings and other assets
• The household and expected changes

2. Your possible home purchase

The bank will typically ask about:

• What type of home you are looking for
• Which area you are looking in
• When you expect to buy
• Whether you already own a home
• How much you can put in yourself
• What running costs the home is expected to have

3. The financing

You can talk about:

• A preliminary purchase budget
• The split between mortgage loan (realkreditlån), bank loan (banklån) and your own money
• Possible loan types
• Monthly payments (ydelse)
• Interest, administration margins (bidrag) and fees
• What the bank will need once you find a specific home

The meeting is therefore both an assessment and a clarification. You do not just get a figure. You also get the assumptions behind it.

What can you get after the meeting?

Banks use different names for their preliminary approvals.

You may come across terms such as:

• Home purchase certificate (boligkøbsbevis)
• Preliminary purchase approval (købsgodkendelse)
• Loan certificate (lånebevis)
• Loan commitment (lånetilsagn)
• Financing certificate (finansieringsbevis)

The names are no guarantee that the documents have the same legal meaning or the same terms.

A document might, for example, be:

• A preliminary budget based on your current information
• An approval up to a certain purchase price
• An approval that only applies to certain types of home
• An approval that requires a certain down payment
• A proposal that has to be recalculated once there is a specific address

The period of validity can also vary. Changes in income, debt, interest rates, savings or the home can mean the bank has to assess your case again.

So do not only ask: How much can I buy for?

Also ask: Which assumptions must still be met when I find the home?

Preliminary approval is not the same as a specific loan offer

A preliminary purchase budget is based on your finances and some assumptions about the home.

A specific loan offer, on the other hand, is tied to a particular financing arrangement and often a particular home. Here the bank and the mortgage credit institution (realkreditinstitut) can consider, among other things:

• The home's price and valuation
• The sales listing (salgsopstilling)
• The property's type and condition
• The final split between loans and your own money
• Current interest rates and bond prices (kurser)
• The loans' terms and costs

You can therefore be approved to look for a home up to a certain level without having a finished loan offer in hand.

That is an important difference if you find a home and have to sign quickly.

What does the bank assess?

The executive order (bekendtgørelse) on good practice rules (god skik) for home loans requires the lender to carry out a thorough assessment of the borrower's creditworthiness. The bank may only enter into the agreement if the assessment shows it is likely that the borrower can meet its terms.^[1]

BoligKlar groups the key elements into four pillars:

1. Debt-to-income ratio (gældsfaktor)
2. Disposable income
3. Net worth
4. Loan-to-value ratio, LTV (belåningsgrad)

This is BoligKlar's explanatory model, not four official fields that all banks must show in the same way.

The bank also looks at, among other things:

• How stable your income is
• The size of the household
• The expected housing costs
• Your choice of loan
• The down payment
• How sensitive your finances are to changes
• The specific home

Read more in the guide to the four pillars of your home finances.

Document checklist before the bank meeting

Use the full checklist of documentation for the bank as your starting point, and adjust it to your bank and your income.

An employee on a fixed salary can often document their finances more simply than someone who is self-employed or has bonuses, commission and several sources of income.

The bank may typically ask for some of this information:

Income

• Payslips (lønsedler) for the period the bank specifies
• Latest annual tax statement (årsopgørelse)
• Preliminary income assessment (forskudsopgørelse)
• Employment contract if you have a new job
• Documentation of bonus, commission or overtime
• Documentation of public benefits or child maintenance
• Accounts and tax records if you are self-employed

Fixed expenses

• Budget overview
• Direct debit (Betalingsservice) overview
• Account details
• Housing costs
• Insurance
• Transport and car
• Childcare and after-school care (SFO)
• Subscriptions
• Regular costs of medicine or treatment

Debt and credit facilities

• Student loan debt (SU-gæld)
• Car loans
• Consumer loans
• Credit cards and credit limits
• Overdrafts
• Family loans
• Outstanding debt (restgæld) from a previous home
• Loans expected to be paid off before the purchase

Savings and net worth

• Account statements
• Investment account statements
• Pension overviews, if the bank asks for them
• Details of your current home and loans
• Documentation of a gift or family loan
• Expected proceeds (provenu) from selling a home

The list is a preparation tool. The bank's own instructions decide which documents it actually needs.

Income: what does the bank need to see?

The bank does not only look at the amount on your latest payslip.

It may also look at:

• Whether your income is fixed or fluctuating
• Whether you are on probation
• Whether you have just changed jobs
• Whether part of your pay is bonus or commission
• Whether your income is expected to change
• Whether both incomes will continue after the purchase

If an income varies, the bank may want information covering a longer period. That does not necessarily mean the income cannot count. The bank needs to be able to assess how stable and well documented it is.

Also mention known changes, such as parental leave, studies, a change of job or retirement. That gives a more accurate picture of the finances that will have to carry the home.

Expenses and spending: where does the money go?

Disposable income is the money left over once all fixed expenses have been paid.

The bank can use, among other things, documentation from Betalingsservice, your accounts and your own information about expenses. The rules require a specific assessment, and insufficient information can mean that the creditworthiness assessment cannot be carried out.^[1]

Before the meeting, you can gather:

• Monthly fixed expenses
• Annual expenses spread over 12 months
• Quarterly bills spread over the months
• Repayments on debt
• Transport costs
• Costs for children
• Known upcoming changes

It also helps to be able to explain larger one-off items. A move, a trip or a repair may have affected your account without being a regular part of everyday life.

The bank may use its own benchmarks for disposable income. A benchmark is not in itself an automatic approval threshold. The household's actual finances must be assessed individually.^[2]

Read the current figures and the explanation in the guide to disposable income.

Debt and credit facilities: include every item

The bank needs to know about the debt and credit facilities that affect your finances.

That includes debt that has nothing to do with the home:

• Student loan debt
• Car loans
• Instalment plans for electronics or furniture
• Credit card debt
• Overdrafts
• Private loans
• Tax debt

Debt can affect your debt-to-income ratio, net worth and disposable income alike.

If a loan is to be paid off before the purchase, the bank needs to see how and when that will happen. If all or part of the down payment comes from a loan, that financing must also be shown. Supplementary financing is included in the assessment of the debt-to-income ratio and disposable income.^[3]

Read more about the debt-to-income ratio when buying a home.

Savings and your own money

As a rule, the bank must make sure you put down an appropriate down payment. The amount is assessed individually.^[1]

That is why it makes sense to split your money into:

1. Money for the home's purchase price
2. Money for land registration (tinglysning) and other purchase costs
3. Money left over as a buffer

If all three amounts sit in one combined balance, the purchase budget can easily look higher than it really is.

The bank may also ask where the money comes from. Savings, a gift and a family loan affect your finances differently. A family loan is still debt, even if the terms are favourable.

Read more in the guides to the down payment on a home and net worth when buying a home.

Your housing wishes: make them concrete enough for a budget

The bank can make a more useful estimate when it knows what you are looking for.

You might describe, for example:

• House, owner-occupied flat (ejerlejlighed), holiday home or cooperative housing (andelsbolig)
• Geographical area
• Whether the home is expected to need renovation
• Transport needs after the move
• Expected owner costs (ejerudgift)
• Time frame for the purchase
• Whether you need to sell a home first

A budget for a newer flat with low heating costs is not necessarily the same as a budget for an older house that requires a car and upcoming maintenance.

The preliminary budget can therefore change once the specific home becomes part of the calculation.

Questions about the purchase budget

A single amount does not tell the whole story.

You can ask:

• Is the amount the home's maximum price or the maximum loan amount?
• How large a down payment is included?
• Have purchase costs been deducted from the savings?
• How large a buffer is left after the purchase?
• Which existing debt is included?
• Which type of home and which owner costs is the budget based on?
• Which interest rate and repayment profile were used in the calculation?
• What happens to the budget if the specific home has higher running costs?
• Is the budget preliminary, or has the bank issued a written approval?

The purchase budget is the price you may be able to pay for a home. It is not the same as the debt ceiling or the loan amount.

Read more in the guide to the purchase budget.

Questions about loans and costs

When the bank shows you a financing proposal, you can ask about:

• The split between mortgage loan and bank loan
• Fixed or variable rate
• Repayments (afdrag) or an interest-only period (afdragsfrihed)
• Term
• Borrowing rate (debitorrente)
• APR (ÅOP)
• Administration margin (bidragssats)
• Set-up costs
• Price spread (kursskæring) and brokerage fees (kurtage)
• Whether you can repay the loan early and what it costs
• Which interest rates and fees the bank can change itself
• How the monthly payment can change over time

Bank fees you can ask about

On top of the interest, the bank charges fees for its work on the home purchase. The prices are in the bank's price list but are not always mentioned at the meeting. The table shows where they sit in the banks' own price lists.

Ask the bank which of the fees apply to you, and whether they are included in the APR in your loan offer.

Do not compare only the first monthly payment. A loan can have a lower payment now and a different risk or repayment profile later.

Read the basic principles in the guide to mortgage loans and bank loans.

Questions about the process when you find a home

It is worth knowing how the bank works before the bidding starts.

You can ask:

• Who do I contact when I find a home?
• Which documents does the bank need about the home?
• How quickly can the bank normally review a specific case?
• Does the budget have to be recalculated for each address?
• Which conditions does the bank need in the purchase agreement (købsaftale)?
• When can the bank provide a bank guarantee?
• When does the down payment need to be available?
• What could cause a preliminary approval to change?

The answers can matter when an estate agent (ejendomsmægler) asks whether your financing is in place.

How to compare the banks' proposals

Banks can present different combinations of loans. So the basis should be as similar as possible before you compare the figures.

Look at, among other things:

A smaller bank loan may, for example, be because the proposal uses more of your own money. A lower monthly payment may be because of an interest-only period or a longer term.

The difference therefore needs to be explained before it is judged.

What can change the bank's approval?

A preliminary approval is based on a particular snapshot.

It may need to be reassessed if:

• Your income changes
• You change jobs
• Your household changes
• You take on new debt or use a credit facility
• Your savings go down
• Interest rates change
• The specific home has higher costs than assumed
• The home is valued lower than the purchase price
• Renovation or other new expenses become part of the plan
• The stated period of validity expires

This does not mean every minor change automatically stops the purchase. It means the bank's earlier calculation may now rest on new assumptions.

Your plan before, during and after the meeting

Before the meeting

• Ask the bank which documents it wants
• Gather income, expenses, debt and savings
• Spread annual expenses over the months
• Note known changes in your finances
• Describe the type of home, area and time frame
• Write down your most important questions

During the meeting

• Have the difference between purchase price and loan amount explained
• Ask which assumptions the budget is based on
• Note the down payment, costs and buffer
• Have the loans' interest rate, repayments, term and costs explained
• Clarify the process for a specific home
• Ask what is missing for a written approval

After the meeting

• Read the written material
• Check amounts and assumptions
• Note questions that were not answered
• Update your budget if the bank used different figures
• Compare proposals on the same basis, if you have more than one
• Save the name and contact details of the responsible adviser

Common mistakes before the bank meeting

You turn up with only your salary

Income alone does not tell you how much home your finances can carry. Expenses, debt and your own money also need to be included.

You forget small credit facilities

Credit cards, instalment plans and overdrafts can affect the assessment, even if the amounts seem small on their own.

You count all your savings as the down payment

Some of it may need to go on costs or be kept as a buffer.

You treat a preliminary budget as a final promise

The specific home and financing still have to be assessed. Read the bank's wording and conditions.

You compare only the interest rate

Fees, administration margins, bond price, repayments, term and redemption terms can change the overall picture.

You use the debt-to-income ratio as the purchase price

The debt-to-income ratio gives you a debt amount. Your own money can raise the purchase price, while disposable income can lower it.

You forget upcoming changes

Parental leave, a change of job, buying a car or a child starting childcare can change your finances after the purchase.

Summary

You do not need to walk into the bank meeting with all the answers.

You need to walk in with an accurate picture of your finances and questions that can make the bank's answers understandable.

Gather in particular:

1. Income
2. Fixed expenses
3. Debt and credit facilities
4. Savings and net worth
5. Housing wishes and expected changes

Then clarify whether the bank's amount is a preliminary purchase budget, a written preliminary purchase approval or a specific loan offer. The terms can look alike, but the assumptions are not necessarily the same.

Work out your purchase budget in the Purchase Budget calculator, and check your debt-to-income ratio in the debt-to-income ratio calculator and your disposable income in the disposable income calculator before the meeting.

BoligKlar gives you a second pair of eyes and an overview. The bank carries out the final creditworthiness assessment and sets the financing.

Frequently asked questions