Net worth when buying a home: what does the bank count?

If you have assets of 600.000 kr. and debt of 200.000 kr., your net worth is 400.000 kr. But that does not necessarily mean you have 400.000 kr. ready for a down payment (udbetaling).

Some assets can be used straight away. Others are tied up in a home, a pension or possessions that must be sold first. That is why the bank looks at the size of your net worth, the value of the individual assets and how accessible the money is.

In brief

• Net worth is calculated as assets minus debt.
• Savings are an asset, but savings and net worth are not the same thing.
• The down payment is the part of your money that goes towards the home's purchase price.
• The bank looks at the documented and realistic value of the assets, not just your own estimate.
• Cash and freely available securities are normally easier to use in a home purchase than a pension, a car or equity (friværdi) in a home that has not yet been sold.
• A positive net worth does not automatically give you financing, and a negative net worth does not automatically lead to a refusal.
• In growth areas, net worth can carry particular weight when the debt-to-income ratio is high and a price fall is assumed.^[1]

What does net worth mean when buying a home?

Your net worth shows your overall financial balance at a given point in time.

The formula is:

Assets minus debt = net worth

Assets are things of value that you own. Debt is the amounts you owe.

If your assets are greater than your debt, you have a positive net worth. If your debt is greater than your assets, you have a negative net worth.

The bank does not use net worth on its own. It is considered together with, among other things, income, debt-to-income ratio (gældsfaktor), disposable income (rådighedsbeløb), down payment, loan-to-value ratio, LTV (belåningsgrad) and the specific home.

See the whole picture in the guide to the four pillars of your home finances.

Which assets can be included in net worth?

Assets can include, among other things:

• Cash and savings
• Freely available securities
• Equity in a current home
• Cooperative housing share certificate (andelsbevis)
• Car and other larger possessions
• Certain pension funds
• Other documented assets

What matters is not only whether the asset exists. The bank must also be able to assess its value and whether the asset can actually be used in or after the home purchase.

The Danish FSA's (Finanstilsynet) growth area guidance states that, when net worth is calculated, the customer's assets should be included at their realistic values.^[1]

This means, for example, that:

• A car does not necessarily count at the price it originally cost.
• Securities can change in value before the purchase.
• Equity depends on the home's current value and the debt secured on it.
• Selling costs and uncertainty can affect how much of an expected value is actually available.

Which debt must be deducted?

Net worth is always calculated after debt has been deducted.

This can include, among other things:

• Mortgage loans (realkreditlån)
• Bank loans
• Student loan debt
• Car loans
• Consumer loans
• Credit card debt
• Overdrafts
• Loans from family
• Outstanding debt (restgæld) from a previous home
• Other private debt

An asset and the debt linked to it must be looked at together.

If the car is worth 150.000 kr. but the car loan is 120.000 kr., the car on its own contributes 30.000 kr. to net worth before any selling costs.

If the home is worth 4.000.000 kr. and the loans secured on it are 3.200.000 kr., the mathematical equity is 800.000 kr. before selling costs and other adjustments.

Net worth, savings, down payment and buffer are not the same

The four terms are often used as if they meant the same thing. That easily leads to mistakes in the purchase budget.

Net worth

Net worth is all assets minus all debt.

Savings

Savings are the money held, for example, in accounts or in freely available investments. They are part of your assets.

Down payment

The down payment is the part of your own money that goes towards the home's purchase price.

Buffer

A buffer is money you choose to keep after the purchase for things such as moving, maintenance and unexpected expenses. The money can still be part of your net worth, but it does not finance the purchase price if it stays in the account.

In addition, part of your savings may go on land registration (tinglysning), loan costs, insurance and help from professionals. That money cannot also be added on top of the possible home loan debt when the purchase price is worked out.

Read more in the guides on the down payment for a home and what it costs to buy a house.

Example of calculating net worth

A household has the following assets and debt:

The calculation is:

600.000 kr. less 250.000 kr. = 350.000 kr.

The household's net worth is 350.000 kr.

But only the savings and possibly the freely available securities are immediately accessible. The car is still in use and is not going to be sold. That is why net worth is not the same as the cash amount that can be spent on buying the home.

Why does the bank look at net worth?

Net worth can say something about several parts of your home finances.

Your own money for the purchase

As a starting point, the bank must make sure that the buyer contributes an appropriate down payment. The size must be assessed case by case.^[2]

Your finances after the purchase

If all your freely available savings are used, there may be less money left for purchase costs, moving and unexpected expenses.

Resilience

A positive net worth can give more resilience if the home falls in value or if your finances change. It can count positively in the overall picture, but it does not replace an assessment of disposable income and ability to pay.

High debt-to-income ratio

With a high debt-to-income ratio, the size and composition of your net worth can matter more, especially in areas covered by the Danish FSA's growth area guidance.

Liquid and illiquid net worth

Two households can both have a net worth of 500.000 kr. and still be in different positions.

Household A

• 500.000 kr. in a savings account
• No debt

Household B

• Car and other possessions worth 500.000 kr. in total
• No debt

Mathematically, the net worth is the same. But Household A has money that can be used straight away for the down payment and costs. Household B must sell its assets before the value turns into cash, and the sale price may differ from the expected value.

That is why the bank may distinguish between:

• Liquid funds that are available
• Assets that can be sold relatively quickly
• Tied-up assets or assets that are hard to sell
• Assets with an uncertain price

This does not mean that illiquid assets are worthless. It means they cannot necessarily be used in the same way as cash.

Equity in your current home

Equity is the difference between the home's value and the debt secured on the home.

The formula is:

Home's value minus debt secured on the home = mathematical equity

If the home is worth 4.000.000 kr. and the debt is 3.100.000 kr., the mathematical equity is 900.000 kr.

The proceeds (provenu) actually available from a sale can be lower because, among other things, there may be:

• Selling costs
• Loan redemption costs
• Price negotiation
• Adjustments in connection with the sale

If the home has not yet been sold, the equity is not the same as cash in an account either. The bank may therefore work with different scenarios for the sale, the purchase and any bridging finance.

Does a pension count towards net worth?

Pension funds are typically tied up and cannot simply be used for the down payment or purchase costs. At the same time, pension savings can be relevant to the overall picture, especially when the time horizon and repayment period are assessed.

The treatment can depend on:

• The type of pension
• When the funds can be paid out
• Tax and duties on payout
• The term of the loans
• Your age and expected income after retirement
• The bank's method and the specific financing

It is therefore too categorical to say that a pension always partly counts, or that it never counts.

Positive and negative net worth

Positive net worth

You have a positive net worth when your assets are worth more than your debt.

It can give you financial flexibility, but it is not an automatic loan commitment (lånetilsagn). The bank still looks at your ability to pay, disposable income, debt-to-income ratio and the home's costs.

Negative net worth

You have a negative net worth when your debt is greater than your assets.

This can be due to, for example, student loan debt, car loans or outstanding debt. A negative net worth can make your finances more sensitive, but it does not in itself mean that buying a home is always impossible.

The assessment depends on, among other things, income, debt repayment, liquidity, the home and the overall risk.

Net worth and price falls in growth areas

The Danish FSA's growth area guidance applies to home lending in Copenhagen and its surrounding area and in Aarhus.

With a high debt-to-income ratio, the guidance generally describes a net worth calculation with an assumed fall in the home's value:

• 10 per cent with a debt-to-income ratio between 4 and 5
• 25 per cent with a debt-to-income ratio above 5

As a general rule, net worth should still be positive after the price fall.^[1]

This is not a forecast for the housing market. It is a calculation of how your finances look if the home's value falls.

Nor is it a general legal requirement that applies equally to all home buyers across Denmark. The guidance contains exceptions and allows for other acceptable measures.

See the calculation method in the guide to debt-to-income ratio and the net worth stress test.

How net worth affects your purchase budget

Net worth can affect your purchase budget in several ways.

Your own money can raise the purchase price

If your finances can support 3.000.000 kr. in new home loan debt and you can put 1.000.000 kr. directly towards the purchase price, the mathematical purchase budget is 4.000.000 kr. before the overall assessment.

Existing debt reduces your room to manoeuvre

Student loan debt, car loans and other debt are deducted from net worth. The debt is also included in the debt-to-income ratio and affects disposable income through interest and repayments.

Costs use up part of your free money

Money for land registration, loans and other purchase expenses cannot also be counted as your own money towards the purchase price.

A buffer does not finance the price

Money you keep in your account after the purchase can be part of your net worth and resilience. But it does not raise the purchase price if it is not used in the purchase.

Read the full calculation in the guide to the purchase budget.

Which documentation can the bank use?

The bank will typically ask for documentation that can show both assets and debt.

This can include, among other things:

• Account statements
• Investment account statements
• Pension statements
• Debt statements
• Information on credit facilities
• Sales listing (salgsopstilling) or valuation of your current home
• Redemption details for loans
• Documentation of a gift or a loan from family
• Information on expected selling costs

The bank may also need to know whether an asset is to be sold and when the money is expected to be available.

A net worth statement becomes more accurate when all items have the same date and are based on documented values.

Common misunderstandings about net worth

Net worth is the same as savings

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

All of your net worth can be used as a down payment

No. Part of it may be tied up in a pension, a home, a car or other assets. Money may also need to be set aside for costs and a buffer.

The car counts towards the purchase price

Not directly, unless it is sold and the money is used in the purchase. The car can be an asset in the net worth statement, but its value must be realistic, and any car loan must be deducted.

A pension always counts at a fixed percentage

No. The treatment depends on the scheme, access to the funds, the time horizon and the bank's specific assessment.

A positive net worth means automatic approval

No. Disposable income, debt-to-income ratio, income, loan-to-value ratio and the home must also fit the financing.

A negative net worth means automatic refusal

No. A negative net worth is an important factor, but the bank must assess your finances as a whole.

Everyone with a debt-to-income ratio above 4 must be stress tested at 10 per cent

No. 10 and 25 per cent are general rules in the growth area guidance for specific areas and must be read together with the guidance's conditions and exceptions.

In short

Net worth is an overall calculation:

Assets minus debt = net worth

But the figure has to be broken down before it becomes useful in a home purchase.

You need to be able to see:

1. Which assets have a documented and realistic value.
2. Which money is liquid and available.
3. Which debt must be deducted.
4. How much goes towards the purchase price.
5. How much goes on costs or is left over as a buffer.

This explains why a net worth of 500.000 kr. does not always mean that 500.000 kr. can be added on top of the home loan.

See how your own money and your debt are included in the Purchase Budget calculator. You can work out the cash you need for the purchase itself in the Down Payment Calculator.

BoligKlar gives you a second pair of eyes and an overview. The bank carries out the final creditworthiness assessment (kreditværdighedsvurdering) and decides on the financing.

Frequently asked questions