Budget before buying a home: how to set it up

Why the budget should come before buying a home, not after

The bank draws up its own budget for you when you apply for a loan. It takes your fixed expenses from your bank statements, adds the new housing cost on top and sees what is left. If you do the maths first, you know what the bank will say, and you can fix the things that can be fixed while there is still time.

I have sat across from far too many people who had been looking at houses for 3,5 million before the numbers showed 2,8. It is an unnecessary disappointment that a budget done in an evening could have spared them. The budget decides which price range you should search in, before you fall in love with something.

Step 1: Income after tax

Start with what actually lands in your account each month: salary after tax and pension contributions, plus any fixed supplements. If there are two of you, add both incomes together. Child and youth benefit counts. The bank does not count bonuses, commission and overtime as fixed income, so leave them out of the calculation.

If you have recently changed jobs for a higher salary, use the new salary, but be ready to document it with your employment contract and your first payslips (lønsedler).

Step 2: All fixed expenses

Go through three months of bank statements and mark everything that recurs: housing, electricity, water, heating, insurance, transport, childcare, subscriptions and repayments on debt. Bills paid annually or quarterly are spread across 12 months. Write down each item rather than an estimate.

The guide on fixed expenses for a family has a template with all the items, so you do not forget vehicle tax, insurance or the gym. It is the small, forgotten items that make the bank's figures differ from yours.

Step 3: Replace your housing cost with the new one

Remove your current rent or monthly payment (ydelse) and put in the total cost of the new home: the monthly payment on the loan, property taxes, owners' association (ejerforening) or homeowners' association (grundejerforening), buildings insurance, heating and an amount for maintenance.

Your loan offer is not a fixed price. It is an opening proposal. The budget is what you negotiate from. So calculate the monthly payment with a fixed rate and repayments (afdrag), whatever you would prefer yourself, because that is what the bank does. If you do not know the home yet, calculate for the price range you are considering. The purchase budget calculator gives you the monthly payment today and after a rise in interest rates, so you see both scenarios.

Once you have a specific home in mind, you can look up the address and see what the home costs per month, including property taxes based on the public property valuation (offentlig ejendomsvurdering).

Step 4: Disposable income and the benchmark

Subtract the fixed expenses from your income after tax. What is left is your disposable income (rådighedsbeløb) after the purchase. Compare it with the guideline minimum for your household: 7.880 kr. for 1 adult, 13.360 kr. for 2 adults and 18.840 kr. for 2 adults with 2 children aged 2 to 6.

If you are above the minimum, you have room to breathe. If you are close to it or below, you need to lower the housing cost, reduce debt or wait. The bank also compares with what you live on today, so you need to be able to explain a large drop in disposable income.

Step 5: Buffer and cash needs

A budget that only just adds up will not survive a new washing machine. Set aside a fixed amount for savings each month, and have a buffer in place when you move in. The first months in a new home are expensive: curtains, lamps, garden tools and things you did not know you were missing.

Also work out your cash needs before you make an offer: at least 5 per cent as a down payment (udbetaling) plus land registration (tinglysning), a lawyer and possibly a building surveyor (byggesagkyndig). This is money that has to be in your account, not in the budget.

Now you have a number, not a hope

You know what is left after the purchase, whether it works for your household and what you can adjust. That is more than most people bring to their first meeting.

Frequently asked questions