How to get the right home loan in Finland? - Personal Finance (2024)

Around 65% of Finland’s population lives in its own home. However, for people originally from abroad the numbers are quite different for various causes. Especially obtaining a home loan can be quite a challenge for foreigners in Finland, even if their financial situation is sound. Therefore, below post is to make you prepared for your bank negotiations and able to assess loan terms correctly.

Before applying for your home loan in Finland

As described already in another blog post you ideally know your financial situation well. Knowledge about income and spending help you understand how much you can afford to spend every month. Don’t forget you will not only pay back your loan, but also pay charges to the housing cooperative.

When it comes to your current assets, think about how you want to use them when buying a home. Make sure to keep at least an emergency fund. Banks usually demand a 25-30 % down payment and accordingly give 70-75% of the home price as a loan.

If you can’t make a 25-30% down payment, it doesn’t necessarily mean you cannot buy a home. You then simply need more securities (also called collateral) to be granted a bigger loan. Securities can be purchased at own cost, but sometimes people already have unused securities without even knowing it. Therefore, I strongly suggest thinking beforehand about potential securities you could offer. Such securities can be shares, or a flat or cottage not entirely used as a security for another loan. It is not uncommon to use the parents’ home as a security for a part of the child’s own home loan. Obviously, you need to discuss if this could really work for all parties involved. Please note banks in general cannot accept securities situated outside of Finland.

It’s also worth to remind yourself what an excellent customer in the bank’s perspective is and evaluate yourself. Having lived in Finland for years, permanent employment, having passed probation period, no negative credit score, etc. are already good basic characteristics. If you do not have before mentioned merits you need more securities, a higher down payment, more income, or a combination of these.

Make several home loan applications

You can conveniently fill in home loan applications of Finnish banks online even in English. Do not wait until you find a home, you’d like to buy but fill in applications beforehand. Enter data of a fictive home to see what loan offer you would get. Only with a suitable loan offer in your pocket you are ready for the hunt of your new home.

It is worth filling in applications of at least three, better five different banks. The reason for that is that every bank has a distinct strategy in place and a peculiar economic situation. Also, the person handling your application has a certain room for decisions. Consequently, it is likely you receive a loan offer from one bank and a negative decision from another.

It is common that Finnish banks call you to go through your application before making a loan decision. Questions arising typically concern your employment and securities you have mentioned in the application.

How to compare home loan offers in Finland?

When people compare home loans, they mostly speak about the interest margin. The margin states how much interest a bank wants a borrower to pay additionally to the Euribor interest rate. The better the credit score of a borrower is, the lower the margin will typically be. On first sight a loan with a 0,1% lower margin might look cheaper, but the margin is not everything.

The bank will also charge you other costs such as the loan arrangement fee or fixed monthly costs. According to regulations, banks also state the total cost rate including other fixed fees. Ideally you compare the total cost rate instead of the margin of the offers you received.

To profit from low interests in the future do also consider secured interest rates (f.ex. fixed interests). The fixed interest rates your bank will give you usually already include your margin. Also compare for how long the bank is willing to secure your interest rate and at which price.
A secured interest rate might look more pricy than variable interests on first sight. Nevertheless, keep in mind that the repayment schedule with a variable interest rate is everything but certain.

It’s important to check whether there is a penalty for premature repayment of the loan or not. Possibly such fees apply only for loans with fixed interests, but not for variable interests. You can save lots of money if you are entitled to make extra repayments at no cost. This will also make it easier to transfer your loan to another bank later (don’t say that!).

Nearly all Finnish banks tend to give relatively long loan periods nowadays so do compare these as well. In general, a longer loan period gives you more flexibility, whereas the role of payable interests grows.

When negotiating you most likely receive better loan terms if you also transfer insurances to the bank’s group. Ask what concrete benefit can come from concentrating your insurances and banking and what the schedule therefore would be.

What if you get no home loan offer in Finland?

If you happen to get no loan offer despite several applications, it doesn’t mean you will never get any. Ask the bank what the reason for the current denial was! Did the bank refuse because of your lack of securities? Then you need more securities or more cash for the down payment. Was the bank reluctant because of your ability to pay? In that case you need more income.

Ask the bank what exactly should be different to get the loan you applied for.

If you haven’t yet thought about ASP accounts and loans you should definitely look into them as well. ASP accounts can be a real alternative for you on your way to your own home. See our blog post here.

Remember these before making bids

Remember the loan offer is valid only a certain period and under the condition your financial situation hasn’t deteriorated. Make a new application if you start a new job or working part-time.

Very important: your bank’s loan offer will consider any liabilities your potential home has towards the housing cooperative. In other words, your dream apartment’s debt to the cooperative typically reduces your bank’s ability to lend.

Example:

An apartment costs 160 000 € bearing a 40 000 € debt to the cooperative for a pipe renovation. The debt free price is thus 200 000 €. From the bank’s perspective 70% of it can count for a loan security (140 000 €). Because of the existing 40 000 € liability, the bank can only agree to borrow you 100 000 €.

Now that you know all these hints all the best for your journey!