The four pillars of your home finances: how the bank's assessment fits together

BoligKlar groups the assessment into four pillars: debt-to-income ratio (gældsfaktor), disposable income (rådighedsbeløb), net worth (formue) and loan-to-value ratio, LTV (belåningsgrad). This is our explanatory model, not four official fields set out in law.

The model makes it easier to see why a high income does not automatically give you a high purchase budget, and why plenty of your own money is not always enough if your monthly finances come under pressure.

In brief

• The debt-to-income ratio shows your total debt relative to the household's annual income before tax.
• Disposable income shows what is left each month after fixed expenses.
• Net worth is the value of your assets minus your total debt.
• The loan-to-value ratio shows how much of the home's value is financed with loans.
• Existing debt is not a separate pillar. It affects the debt-to-income ratio, net worth and disposable income alike.
• The bank must carry out an overall creditworthiness assessment and show it is likely that the borrower can meet the terms of the agreement.^[1]
• The pillar that sets the lowest ceiling can end up deciding the purchase budget.

Are the four pillars an official model?

No.

BoligKlar's model brings together some of the most important information that recurs in the rules and in banks' credit assessment (kreditvurdering). The guidance on good practice rules (god skik) for home loans mentions, among other things, disposable income, an appropriate down payment (udbetaling) and the ability to withstand changes in interest rates and administration margins. The rules also restrict certain risky loans where the debt-to-income ratio and loan-to-value ratio are high.^[2]

The four pillars are therefore a way of making a large bank spreadsheet understandable.

Why does the bank assess the whole picture?

Buying a home affects your debt, your fixed expenses and the money you have left over.

If the bank only looked at income, two households with the same pay would get the same answer. They do not necessarily get that.

One household might have:

• A car loan and student debt
• High transport costs
• Small savings
• A house with high running costs

The other might have:

• No existing debt
• Plenty of their own money
• Lower fixed expenses
• A cheaper home to run

The income is the same. The overall picture is different.

The executive order on good practice for home loans requires a thorough assessment of the borrower's relevant financial circumstances. The lender may only enter into the agreement if the assessment shows it is likely that the borrower can meet its terms.^[1]

Pillar 1: Debt-to-income ratio

The debt-to-income ratio compares the household's total debt with its annual income before tax.

The formula is:

Total debt ÷ annual income before tax = debt-to-income ratio

If a household has 3.000.000 kr. in total debt and an annual income before tax of 750.000 kr., the debt-to-income ratio is 4.

The Danish FSA (Finanstilsynet) generally regards a debt-to-income ratio above 4 as high. That is not the same as a universal maximum or an automatic rejection.^[2]

Nor does the debt-to-income ratio tell you directly how expensive a home you can buy. It tells you how large your total debt is relative to your income.

If you have plenty of your own money, the purchase price can therefore be higher than the amount of debt. Conversely, disposable income can set a lower ceiling than the debt-to-income ratio.

Read the full guide on the debt-to-income ratio when buying a home.

Pillar 2: Disposable income

Disposable income is what the household has left each month once all fixed expenses are paid.

The formula is:

Income after tax minus fixed expenses = disposable income

The amount needs to cover, among other things:

• Food and groceries
• Clothing and personal care
• Leisure and holidays
• Savings
• Gifts
• Unexpected expenses

The bank looks both at the amount after the purchase and at what the household has actually been used to spending.

How much disposable income a person or family needs is individual. Banks may work with their own benchmarks, but they must still assess the specific household.^[3]

A household can therefore fit comfortably within a given debt-to-income ratio and still end up with a lower purchase budget if the monthly housing costs leave too little for everyday life.

Read the current benchmarks in the guide on disposable income in 2026.

Pillar 3: Net worth and your own money

Net worth is the difference between the value of your assets and your total debt.

Assets can include, among other things:

• Cash savings
• Securities
• Equity in an existing home
• Other assets that the bank can document and value

Debt is deducted:

• Home loans
• Student debt
• Car loans
• Consumer loans
• Overdrafts
• Other private loans

Net worth is not the same as the down payment.

The down payment is the part of the purchase price you pay yourself. Net worth is the full balance between assets and debt. You can therefore have a positive net worth and still lack the cash for the down payment or the purchase costs.

The rules require the lender, as a starting point, to ensure an appropriate down payment. How large it must be depends on the specific assessment.^[1]

Part of your savings may also be needed for:

• Land registration (tinglysning)
• Loan costs
• Insurance
• Help from professionals
• Moving and renovation
• The buffer you want to keep

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

Pillar 4: Loan-to-value ratio

The loan-to-value ratio shows how much of the home's value is financed with loans secured on the home.

The formula is:

Loans secured on the home ÷ the home's value × 100 = loan-to-value ratio

If a house is worth 3.000.000 kr. and the loans secured on it total 2.700.000 kr., the loan-to-value ratio is 90 per cent.

The loan-to-value ratio and the debt-to-income ratio are not the same:

A buyer with plenty of their own money can have a high purchase price, a high debt-to-income ratio and a relatively low loan-to-value ratio. Another can have a lower debt-to-income ratio but a high loan-to-value ratio, because almost the entire purchase price is financed.

The combination matters. The good practice rules generally restrict certain risky mortgage loans (realkreditlån) and similar loans when both the loan-to-value ratio and the debt-to-income ratio are high.^[1]

Read more about how financing is structured in the guide on mortgage loans and bank loans.

Where does existing debt belong?

Existing debt is important, but it is not a pillar in its own right.

It has an effect in several places at once.

The debt-to-income ratio

Student debt, car loans and other debt are added to the new housing debt. That makes the debt-to-income ratio higher.

Net worth

Debt is deducted from assets. That makes total net worth lower.

Disposable income

Monthly interest and repayments (afdrag) are fixed expenses. That makes disposable income lower.

The loan-to-value ratio

A car loan does not normally affect the loan-to-value ratio on the house directly, because the loan is not secured on the home. It still affects the overall credit assessment through the other pillars.

An earlier version of the model treated existing debt as a separate pillar. That led to double counting and left the loan-to-value ratio outside the model.

How the pillars affect each other

When one part of the calculation changes, several pillars can shift.

More of your own money towards the purchase price

This can mean:

• Lower new housing debt
• A lower debt-to-income ratio
• A lower loan-to-value ratio
• Less liquid money left over

Your net worth does not necessarily fall, because money in the account is exchanged for value in the home. But the purchase costs reduce your net worth, and the liquid buffer gets smaller.

An existing car loan

This can mean:

• A higher debt-to-income ratio
• Lower net worth
• Lower disposable income because of the monthly payment

A more expensive home

This can mean:

• A larger borrowing need
• A higher debt-to-income ratio
• A higher loan-to-value ratio
• Higher monthly expenses
• Greater demands on the down payment

That is why it is rarely enough to change one number in a home-made spreadsheet and leave the rest as it is.

Three examples with the same income

Three households all have an annual income before tax of 800.000 kr. They are looking at the same home priced at 3.500.000 kr.

Household A: Small savings and no other debt

The debt-to-income ratio is above 4, and the loan-to-value ratio is high. Disposable income and net worth therefore carry a lot of weight in the overall assessment.

Household B: Large savings and a car loan

The car loan counts towards the debt-to-income ratio and disposable income. It is not secured on the house and therefore does not directly affect the house's loan-to-value ratio.

Household C: Plenty of their own money, but high fixed expenses

The debt-to-income ratio and loan-to-value ratio are lower than in the other examples. But if transport, children, insurance and other fixed expenses are high, disposable income can still set a lower ceiling.

The examples are simplified. They show why the same income and the same home price do not necessarily give the same result.

Which pillar sets the purchase budget?

The purchase budget is not set by the average of the four pillars.

In practice, the most limiting part can set the ceiling.

The debt-to-income ratio sets the ceiling

Total debt becomes too high relative to income before the other parts of your finances come under pressure.

Disposable income sets the ceiling

The monthly payment (ydelse) and the home's fixed costs leave too little for everyday life.

Net worth sets the ceiling

There is not enough of your own money for an appropriate down payment, the costs or the resilience the bank requires.

The loan-to-value ratio sets the ceiling

The financing requires a larger share of your own money, or the combination of a high loan-to-value ratio, a high debt-to-income ratio and the loan type becomes too risky.

That is why a simple calculation based on the debt-to-income ratio can show a higher amount than the bank's purchase budget. It can also happen the other way round if you have plenty of your own money, because the purchase price can be higher than the debt ceiling itself.

Growth areas and stress test

In Copenhagen and its surrounding area and in Aarhus, the Danish FSA's special guidance for growth areas applies.

Here, extra weight is placed on resilience to higher interest rates and falling house prices. Where the debt-to-income ratio is high, the guidance as a general rule describes a net worth calculation with:

• A 10 per cent price fall at a debt-to-income ratio between 4 and 5
• A 25 per cent price fall at a debt-to-income ratio above 5

As a general rule, net worth should still be positive after the price fall.^[4]

This is not a general legal requirement for all home buyers across Denmark. The guidance contains exceptions and allows for other acceptable measures.

Read the worked explanation in the guide on the debt-to-income ratio and net worth stress test.

What information does the bank use?

The bank will typically gather information on:

• Income and employment
• Fixed expenses
• Household and children
• Student debt, car loans and other debt
• Savings and securities
• Existing home and equity
• The home you want to buy
• Down payment and financing needs
• Choice of loan
• Expected expenses after the purchase

The information is not just used to fill in four fields. It is used to assess whether your finances add up both now and after the purchase.

Common misconceptions about the four pillars

A debt-to-income ratio of 4 is the same as a loan commitment

No. A debt-to-income ratio of 4 only tells you something about your debt relative to your income.

The debt-to-income ratio shows what the home can cost

No. It shows an amount of debt. The purchase price can be higher if you add your own money, and lower if disposable income sets the ceiling.

Net worth is just savings

No. Net worth is assets minus debt. Savings are only one asset.

A large down payment solves everything

No. A larger own contribution can reduce debt and the loan-to-value ratio, but disposable income and your overall finances still need to work.

Banks must use exactly the same minimum figures

No. The rules set a common framework, but banks can have different credit policies and budget assumptions. The assessment must still take account of the specific household.

Existing debt only matters once

No. It affects the debt-to-income ratio, net worth and disposable income at the same time.

A strong pillar automatically cancels out a weak one

No. A strong ratio can count positively in the overall picture, but the bank judges how much it weighs case by case.

Summary

The four pillars give you four different angles on the same finances:

1. The debt-to-income ratio shows debt relative to income.
2. Disposable income shows the room you have in everyday life.
3. Net worth shows the difference between assets and debt.
4. The loan-to-value ratio shows how much of the home is financed.

None of the figures can stand alone.

It is the interplay that explains why you can have a high income and still get a lower purchase budget than expected. Or why plenty of your own money can raise the purchase price even though the debt ceiling does not change.

Work out your debt-to-income ratio in the debt-to-income ratio calculator and your disposable income in the disposable income calculator. Then see your overall purchase budget in the Purchase Budget calculator.

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