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Author
Laur Teppan
In my daily work, I constantly see that the success or failure of a transaction ultimately comes down to one question: what does the bank think? Practice shows that many buyers start the process from the wrong end. They first choose an apartment or a house and only then start looking at what the bank's requirements are for a home loan.
The bank's negative response or a smaller-than-expected loan amount is no surprise to those who do their homework before submitting a loan application. Getting a home loan is not a lottery; it is pure mathematics and getting the documents to match.
If you plan to buy real estate with a loan, here are three points you must absolutely pay attention to.
1. Technical "cleanliness" of the property
Many buyers focus only on their income, but the bank assesses the collateral as strictly as the borrower. I have seen dozens of times how a transaction falls through because the selected property lacks a use permit or the actual construction work does not match the data in the building register.
Unauthorized alterations. If load-bearing walls have been demolished in the apartment or the heating system has been changed without a project, this is a red flag for the bank. Before making an application, it must be verified whether the plans on paper match what you actually see on site.
Condition of the apartment association. For a larger building, the bank looks at the association's annual financial reports and loan commitments. If the association has large debts or ongoing court disputes, it can make getting a loan much more difficult.
Energy class. In today's market, the energy class of the property is directly related to the loan interest rate. A higher energy class often means a more favorable margin, which saves thousands of euros over a long loan period.
2. The actual size of the self-financing
The honest answer is that the standard 15–20% self-financing is not always a rule set in stone. The amount directly depends on the liquidity and location of the property being purchased.
Impact of location. If you buy a renovated apartment in the center of Tallinn, the bank's risks are lower and the home loan self-financing can remain at the minimum allowed rate. However, if it is a house located in a rural area that needs major renovation, the bank may require a 30–40% self-contribution.
Additional collateral. If you lack spare cash for a down payment, the solution is additional collateral. For example, your parents' apartment or another property you own. At this point, it must be taken into account that a mortgage is placed on the additional collateral in the same way, and its release only happens when the value of the main collateral has increased sufficiently or the loan balance has decreased.
3. Account statement and invisible commitments
Banks no longer look only at the monthly net salary. Buying real estate with a loan means that your financial behavior over the last six months will be dissected. One thing many forget is that regular small expenses can significantly cut your borrowing capacity.
Leasing and hire-purchase. Any consumer loan, car lease, or even a smartphone hire-purchase reduces your monthly free balance. My recommendation: if you plan a larger loan application, pay off all small commitments beforehand if possible.
Credit cards and limits. The bank counts the free limit of a credit card as a commitment, not how much you have actually spent from it. If you have a 5,000 euro credit card limit that you do not use, the bank still sees it as a potential monthly expense. Unnecessary limits should be closed.
Real example from life itself
Some time ago, I had a client who wanted to buy a terraced house box near Tallinn. Income was exemplary and the down payment was available. However, the transaction stopped because, during the valuation report, it turned out that the box had an unregistered terrace in the building register, and the layout of the second floor had been changed without being officially approved anywhere. The bank refused financing until the documents were in order.
Since we have an established network of contacts at Ellix, we were quickly able to involve a competent designer and communicate with the local municipality. Putting the documentation in order took six weeks, but the transaction was completed. This story confirms the old truth - there is no point in going to the bank to ask for a loan without proper paperwork.
Summary
The entire loan process actually starts with preparation - if the paperwork and financial status are in order early on, there will be no surprises from the bank. If you plan to buy real estate in the near future and want to discuss the financial side or the technical condition of the chosen property, please contact me. We will get your documents in order so that going to the bank is just a mere formality.
Laur Teppan | Real Estate Broker and Partner | laur.teppan@ellix.ee | +372 5682 2666
