Buying a home is a big decision that requires careful planning and research to avoid unpleasant surprises. Whether you're a first-time buyer or an experienced home buyer, there are many things to consider when investing in your new home.
That's why we at Bomae have put together a comprehensive guide to buying a home that will help you navigate the process and make well-considered decisions. In this guide you'll find tips and tricks for setting your budget, researching the housing market, seeking professional help and much more. Whether you're looking for a flat in the city or a house in the countryside, our guide will help you turn your dream home into reality. In this buyer's guide you can read about:
- Get your finances in order
- Research the housing market
- Have your documents in order
- Get help buying a home with Bomae
Get your finances in order. Before you go to the bank or start looking at homes, it's important to have a handle on your finances. Buying a home is a big investment, and it requires careful planning to make sure you can afford what you want. This includes setting a budget, getting a handle on your creditworthiness, and calculating how much you can actually borrow.
By getting your finances in order early in the process, you can avoid exceeding your budget and ultimately make a decision that's good for both you and your finances. In this section, we'll give you tips and tricks for getting your finances in order, so you're ready to take the next step in the home-buying process.
Set a budget
The first step is to set your budget and get a clear picture of your current financial situation. That way you can find out how much you can actually afford to borrow for a home purchase.
When setting a budget, it's very important to be realistic about your spending. It's better to set your budget a little higher than it actually is. That way you can better account for unforeseen expenses and still have an emergency fund to cover unexpected costs.
So put together a detailed budget where you incorporate as much as possible. Remember to account for expenses such as hobbies, your daily coffee on the way to the office, and similar. The more detailed your budget is, the fewer unwelcome surprises you risk experiencing after you've bought your home.
If, for example, you've forgotten to include some expenses in your budget, and your disposable income is therefore lower than what you were granted a loan based on, you may have to compromise significantly on your standard of living.
Disposable income (rådighedsbeløb) refers to the amount left in your account after you've paid all your fixed expenses, such as rent, water, heating, electricity, transport, insurance, any loan repayments, etc. In other words, disposable income is the amount you have left to spend on food, household items, clothes, holidays and other pleasures.
As a rule of thumb, your monthly disposable income should be at least:
- 5,000 kr. for 1 adult
- 8,500 kr. for a couple
- + 2,500 kr. per child living at home
You can read more about disposable income when buying a house here.
Calculate your gældsfaktor (debt-to-income factor). The debt-to-income factor is a key figure the bank uses to calculate how sound your finances are and how much you're allowed to borrow. To calculate it, you divide your total debt by the household's gross income. Remember to include car loans, student debt, consumer debt and any overdraft facilities.
Remember that you must have saved up at least 5% of the total purchase price yourself in order to be allowed to borrow. For example, if you're buying for 4 million kroner, you need to have saved at least 200,000 kr. for the down payment on your home purchase. As a starting point, your debt-to-income factor may not exceed:
- Owner-occupied home: 3.5 x the household's pre-tax income
- Co-operative home: 1.75 x the household's pre-tax income — if the co-operative association's finances are sound.
Read more about loan advice here: You won't get the best and cheapest home loan at the bank
Get a handle on your creditworthiness. Your creditworthiness is an assessment of your ability to repay the loans or other financial obligations you've taken on. The higher your creditworthiness, the better your chances of getting a home loan or other loans approved, and you'll typically also be able to get better terms, such as a lower interest rate.
Here are some things you can do to get a handle on your creditworthiness:
Check your credit report:
You can order a credit report from the larger credit rating agencies, such as Experian and Equifax, to see how your creditworthiness looks. The credit report will give you an overview of your payment history, your debt, your employment history and other factors affecting your creditworthiness.
Check your information:
Once you've received your credit report, make sure to check the information for any errors or inaccuracies. If you find errors, contact the credit rating agency and ask to have the information corrected
Pay your bills on time:
One of the most important factors affecting your creditworthiness is your payment history. Make sure to pay your bills on time every month, and avoid having unpaid bills or debt collection on your record.
Keep your debt down:
Your debt-to-income factor and your creditworthiness are linked, so it's important to keep your debt as low as possible. The less debt you have, the easier it will be to maintain good creditworthiness.
Use your credit cards wisely:
Credit cards can be useful tools, but it's important to use them wisely. Make sure to only use them for things you can afford, and pay off your balance every month. That way you'll avoid accumulating unnecessary debt and losing your good creditworthiness.
By following these steps and getting a handle on your creditworthiness, you'll increase your chances of getting a home loan approved and achieving the best possible terms and interest rates.
Calculate how much you can borrow for a home purchase. Before you can start looking for homes, it's worth asking yourself the question,
what can I borrow for a home purchase?
To find out how much you can borrow for a home purchase, you need to look at, among other things, your down payment, your age, any debt-to-income factor, and how much disposable income you need each month.
You can try our online loan calculator to get an idea of roughly how much you can borrow:
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Research the housing market. Once you've got your finances in order, you're ready to research the market and find the perfect home purchase. When you're going to buy a new home, it's important to have a good understanding of the housing market as well as current home prices.
Some tips for researching the housing market are:
Use digital search agents: By using digital search agents, you can set up the criteria you've identified through the other exercises. This makes you much more specific and lets you quickly sort out what matches your wishes. It gives you a clear advantage to be well prepared when the market moves so fast — because when the right one comes along, you'll be ready to act.
Visit open houses: Open house events give you the chance to visit a home and see it in real life. This can be a good way to get a sense of what's available in your area, and what you can expect for the given prices.
Talk to local estate agents: Remember to have a chat with local estate agents in the area you're considering buying in. They may well have off-market listings that never make it online for various reasons.
Get a valuation of the home: Once you've found a home you're interested in, you can ask an estate agent for a valuation of the home. This can give you an idea of what the home is worth, and whether the price is reasonable. If you find a great co-operative home or owner-occupied flat, it's very important that you also look into the owners' association's financial condition. In that connection, also review any articles of association and meeting minutes.
Have your documents in order. When you're going to buy a home, it's important to have all the necessary documents in order before you sign a purchase agreement. This can help ensure the deal goes as smoothly as possible, and that you avoid unexpected costs or problems later on. Here are some of the documents you need to have in order:
- Purchase agreement: The purchase agreement is the document that describes all the details of the purchase, including the price of the home, payment terms and the date of possession. It's important to review the purchase agreement thoroughly and make sure all conditions are met before you sign.
- Property data report (ejendomsdatarapport): The property data report is an overview of all the information about the property registered by the authorities, such as the site plan, taxes and duties, easements (servitutter) and any environmental issues.
- Financing documents: If you're financing your home purchase, you need to have all the documents from your bank or lender in order, including loan papers and approvals.
- Deed (skøde): The deed is the document that transfers ownership from seller to buyer. It's important to have the deed in order and make sure it's signed and registered correctly.
- Insurance documents: It's important to have the insurance documents in order in connection with buying a home, including insurance against damage to the property and liability insurance.
By having all these documents in order, you'll be well equipped to complete a smooth home purchase. If you're unsure which documents you need or how to proceed, a buyer's advisor or a lawyer can help you get everything sorted.
Get help buying a home with Bomae. If you need further advice or help with your home purchase, feel free to contact Bomae, where our buyer's advisors are ready to help you on the way to your new home.
Fill in the contact form so we can talk about how we can help you with buying and financing your home.
