Your guide to sound finances in a new home
At Bomae, we understand that the road to buying a home can seem complex. That's why we've created this in-depth guide, giving you full insight into what disposable income (rådighedsbeløb) is, how it's calculated, what banks look for, and, not least, how you can optimise your finances so your dream home becomes a reality. We combine our financial expertise with a personal approach, so you feel secure and well-informed throughout the whole process.
What is disposable income when buying a home? Your disposable income (rådighedsbeløb) is the amount you have left in your account each month once all your fixed expenses, including your new housing costs, have been paid. In short, it's your financial breathing room, which must cover everything from food and clothing to leisure interests, transport, and unforeseen events. Banks use disposable income as a key indicator of your ability to manage ongoing expenses and thereby meet your obligations on a home loan. It's about ensuring that you have robust, healthy finances even after your dream home has been bought. Sufficient disposable income is a sign that you can maintain a good quality of life without ending up in financial difficulty.
How large should my disposable income be? How you can improve your disposable income. Gældsfaktor (debt-to-income factor) – another important metric. How do you calculate your debt-to-income factor? Debt restructuring in relation to your disposable income.
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How is disposable income calculated? Disposable income is calculated by subtracting all your fixed monthly expenses from your available after-tax income. This calculation gives a clear picture of how much money you have available for variable expenses.
The formula is simple: Available income (after tax) – Fixed expenses = Disposable income
It sounds straightforward, but it requires a thorough overview of your finances to map out all expenses accurately.
Fixed expenses: What should you count? Fixed expenses are the costs that are typically the same every month and that you cannot adjust on short notice.
These include:
- Housing costs: Rent/home loan (including mortgage credit loans and bank loans), property tax, property value tax, shared expenses (for owner-occupied flats/housing co-operative shares), building insurance, heating, electricity, water, internet, and any waste collection/pest control charges.
- Transport: Car loan, insurance, green ownership tax, fuel, public transport.
- Insurance: Contents, accident, travel, life, and health insurance.
- Subscriptions: Mobile phone, streaming services, gym membership, union dues, unemployment insurance fund (a-kasse).
- Debt: Repayments on student loans, consumer loans, or other credit.
It's essential to be thorough here, as an overlooked fixed expense can give a misleading picture of your actual disposable income.
Variable expenses: What is your spending?
Variable expenses are the costs that fluctuate from month to month and cover your day-to-day spending. These are often the ones that can be optimised the most, but also the ones easiest to underestimate. They typically include:
- Food and drink: Groceries, restaurant visits, takeaway.
- Personal care: Hairdresser, cosmetics, medicine.
- Clothes and shoes.
- Leisure interests: Sport, hobbies, cultural experiences.
- Entertainment: Cinema trips, social events.
- Gifts.
- Savings: Although it's a line item for the future, a fixed amount set aside for unforeseen expenses, holidays, or retirement should be regarded as a variable expense you actively allocate to yourself. Drawing up a detailed budget of your variable expenses is an invaluable exercise that gives you control and insight.
What are the banks' requirements for disposable income when buying a home? Banks have a clear interest in ensuring that you, as a homebuyer, have sound and stable finances. That's why they set requirements for your disposable income, to ensure that you can pay your loans while still having a reasonable standard of living. Rules of thumb and individual assessments. There are no statutory minimum requirements for disposable income, but most banks and mortgage credit institutions operate with internal rules of thumb. These are typically:
- For a single person: Around 6,000-7,000 kr. per month.
- For a couple: Around 10,000-11,000 kr. per month.
- For a family with children: An additional 2,500-3,000 kr. per child per month.
It's important to stress, however, that these are just rules of thumb. The bank's assessment is always individual. They will look not only at the figure but also at your lifestyle, spending patterns, any savings, job security, and future plans. A family with young children has different expenses than a couple in their 50s, and the bank takes that into account.
The bank will also assess your finances as though interest rates were higher than they currently are, to ensure you can handle any future rate increases. This is called a stress test of your finances.
Disposable income for different household types
The banks' recommendations are adjusted according to household composition:
- Single: A single person often has a somewhat higher disposable income per person compared with a couple, since fixed expenses cannot be shared in the same way.
- Couples without children: Here it's important to show a combined, stable disposable income that covers both people's spending and a sensible amount of savings.
- Families with children: Children bring significantly higher variable expenses for daycare, leisure activities, clothes, food, and experiences. The bank will therefore expect a higher combined disposable income to cover this.
At Bomae, we advise you based on your specific life situation, so you get a realistic assessment.
Optimising your disposable income – before and after buying a home. Whether you're close to buying a home or it's still a distant dream, there are always ways to optimise your disposable income.
Before buying a home: Maximise your disposable income
- Go through your budget meticulously: Find all the "black holes" in your finances. Are there subscriptions you don't use? Can you negotiate down your insurance or mobile subscriptions?
- Reduce unnecessary variable expenses: Consider where you can cut back on takeaway, restaurant visits, or impulse purchases in the period leading up to buying a home. Every krone saved counts.
- Get rid of expensive debt: If you have consumer loans or an overdraft, prioritise paying these off. It frees up money in your monthly budget and improves your creditworthiness.
- Increase your income: Consider extra work, negotiating your salary, or selling things you no longer use.
- Build up solid savings: Good savings that cover the down payment on the home (typically 5% of the purchase price) as well as a buffer for unforeseen expenses show the bank that you are financially responsible and have robust finances.
After buying a home: Remember the unforeseen expenses
Many homebuyers focus exclusively on their disposable income up to the point of purchase. But it's just as important to be able to afford to live in the home — and that includes the unforeseen expenses.
- Renovation and maintenance: An older house often requires more maintenance than a newly built flat. Think of everything from a leaking tap to a new roof or a leaking façade. These costs can be substantial.
- Appliances and furnishings: Does the new home need new appliances, a fridge, or perhaps a new sofa?
- Damage: Water damage, storm damage, burglary — accidents can happen, and even though insurance covers part of it, there may be excesses or costs that aren't covered.
- Interest rate increases: As mentioned, the bank will stress-test your finances. But it's also a good idea to have your own buffer in case the interest rate on your home loan rises more than expected.
A good rule of thumb is to have savings for unforeseen expenses equivalent to at least 3-6 months of fixed expenses.
How does the macroeconomy affect your disposable income? Macroeconomic trends can have a significant impact on your disposable income, both directly and indirectly.
- Interest rate increases: If the Danish central bank (Nationalbanken) or the European Central Bank raises interest rates, this will typically lead to higher rates on variable-rate home loans. This means a higher monthly payment and thus lower disposable income.
- Inflation: Rising inflation means that the prices of goods and services increase. This affects your variable expenses on, for example, food, petrol, and everyday pleasures, reducing the purchasing power of your disposable income even though the figure itself doesn't change.
- Energy prices: Fluctuating energy prices for electricity, gas, and heating can have a direct effect on your fixed housing costs and thereby eat into your disposable income.
It's therefore a good idea to budget with a degree of robustness and not run your finances flat out, even in economically stable periods.
Get personal advice for your home purchase. Navigating the finances of buying a home can be a complex task. At Bomae, we believe the best path to a secure home dream is through personal, qualified buyer advisory services. We help you to:
- Get a precise overview: Together, we go through your finances and put together a realistic budget.
- Calculate your disposable income: We help you understand what the bank looks for and how you meet the requirements.
- Optimise your situation: We find the best strategies to strengthen your disposable income.
- Assess your options: We take your life situation, future plans, and macroeconomic trends into account, so you get a solution that holds up in the long run.
Fill in the contact form so we can talk about how we can help you with buying and financing your home.
