Should you buy a new home? Then there is a good chance that you need a loan promise from the bank. Here you will learn all about loan promises and how to get the best terms based on your conditions.
How does a loan promise work?
A loan pledge can most easily be described as an advance notice from the bank about how much you can borrow to be able to buy a home. As a rule, you usually apply for the loan pledge before you go to show, so that everything is already clear if you win the bidding.
The application is simple. You contact a lender, it does not have to be your own bank, and ask to discuss a loan promise. In some cases, it is equally possible to make the application directly online. The lender then takes a credit report, almost always a UC, to check your finances.
A loan promise is not the same as a loan application. The loan application itself is made only after you have won a bidding and is ready to put up the loan.
Here it may be good to remember not to apply for too many loan promises. Each new UC request affects your credit rating for the worse. Therefore, do not waste UC unnecessarily – you never know when you will need as good a credit rating as possible. If you only need a small loan, apply to a lender who does not use UC.
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Start by discussing unconditionally with the bank what type of loan promise you can expect based on what you earn in the current situation and what annual income you last declared. The bank needs your permission to take a UC and they must also by law send a request copy.
The request copy will be sent to your address book, but you can also choose to receive it digitally by connecting to Kivra. Kivra is a digital mailbox that cooperates with a number of authorities and companies. You choose which letters you want to receive in Kivra and which you want to receive by traditional mail.
Hard loan requirements
Virtually all lenders require permanent employment, no payment notes and a declared income at some level. It is also common for the bank not to lend more than five times the declared annual income. In other words, if you earn SEK 300,000 a year, you can expect a loan promise of around SEK 1.5 million.
However, it differs greatly from bank to bank. Therefore, it is best to always start by asking the bank what level you can expect. If you need a loan pledge despite a payment note, you can try to apply to Bluestep, which is niche for customers who have a slightly lower credit rating.
Be perfectly honest and say as it is, as the bank’s calculation must go together to offer you the loan promise. It does not matter if you have a good salary today if your last declared income was SEK 0.
To see your last declared income, just take a quick look at the declaration. Your latest tax return can be found at the Swedish Tax Agency. A loan promise is never binding and is free.
In the credit report, the bank not only looks at declared income but also debts that you have within the bank and to other institutions. Remember that a purchase on installment is technically also a credit and something that is visible in the information.
Therefore, be cautious about the amount of credits you accumulate. Maybe it is not necessary to buy a new TV on installment?
The fewer credits and the higher the income, the better terms you can expect.
A loan promise from the bank only applies provided that the information you have provided is true and that nothing has changed significantly since then. For example, if you lose your job, you are obliged to tell the bank. If you find yourself in between two jobs, you have the opportunity to apply for a loan without fixed income with Mahilo Family.
Although the policy rate is at record low levels, there is a lot of money to be saved in comparing the banks’ interest rates. It can be about thousands of patches every year that you are guaranteed to use for something more fun. Call around a little and hear with the banks about what they can offer you.
Often you will receive an interest rebate if you collect several transactions in one and the same bank, but the total transaction may not be cheaper for that matter. What does it help if you get a few points better interest if the bank’s car insurance costs several hundred SEK more a month than your old car insurance?
Your basic position should be to get as good a discount as possible based on your circumstances. Competition for mortgage customers has intensified and today there are more players in the market that are challenging the four traditional major banks.
Show that you are attractive as a customer. Keep your finances in good order, take no unnecessary credit and do not buy on installments. The more orderly finances you have, the better the bargaining position you have. There are also sites that aim to compare mortgages, but our tip is to contact the banks directly. An unconditional phone call never hurts and helps you gain a foothold in the market.
Look at the cut rate, not the list rate
Compare the banks’ average rates. The average interest rate is the interest rate that the average customer pays and it is often significantly lower than the interest rate, which is the bank’s official interest rate. You should demand a lower interest rate than the average interest rate. Also, look at SvD’s popular Interest Map, a service where visitors voluntarily report their interest rates. The service is free and a great tool for comparing interest rates in different areas.
If you are negotiating an interest discount, check out how long the discount is valid. Try to avoid a time-limited discount on the interest rate, but make sure you have it forever regardless of the interest rate situation otherwise. Ask the bank right out: “What is the best interest rate you can give me” and “What can I do to get more discount on the interest rate?”
Then the bank may propose different solutions. Once you have received an offer or loan promise from a particular bank, you can take it with you to the next bank and say as it is. That you have received an offer but you wonder if you can get a better one. It all depends on how attractive you are as a customer and how far you are willing to go in a negotiation.
For other of us, interest rates may not be the most important thing, but prioritizing the simplicity of collecting everything in the same bank or having a contact person who is available and safe to talk to. Think about what’s important to you.
The bank must approve the housing
Even if you win a bidding within the context of your loan promise, the bank can still say no if they think the apartment or house is a bad deal. They often want to look at the annual report of the association and look up average prices in the area to feel confident that they have a good security for the loan.
If they are doubtful, they may require you to repay more or simply say no. It can be annoying but work with and not against the bank. They may have a point in whether they think the association’s finances are bad and in that case you may be saved from doing a bad business.
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As a rule, the bank also wants to submit an employer certificate as well as your three latest salary specifications, to ensure that it really enters pay into the account every month. If you have recently received a salary increase, inform the bank of this and ask your employer to enter it on the certificate.
Most loan promises are valid between 3-6 months. You can apply for an extension of the loan promise if you do not find any interesting object within that time.
The loan promise also takes into account the property’s fees, such as electricity, fees to the association and other fixed costs. Think carefully before you talk to the bank about what type of accommodation and in which area you intend to look for an apartment. Think about the bay fee you are willing to pay to the association each month, as this also plays a role in the size of the loan promise.
Once you’ve won the bidding
Note Never sign anything before the bank approves the home. In the worst case, you may be fined for breach of contract in cases where you cannot complete the purchase. When you win a bidding, call your contact person at the bank and inform about the situation. Hopefully you have a good relationship where you feel you can always call and get quick help.
The bank makes a calculation where they calculate how much you have left to live on each month and it must go together, even if the interest rate changes.
As soon as the contact person has approved the property, you can sign the purchase contract. It is you who decide if you want to buy and not the broker. Do not let the broker control or influence your decision. You can always regret it until you sign the contract.
One way to try to bargain on the home might be to say that unfortunately you cannot bid higher because you do not have a loan promise on more. Then the broker cannot argue that you should raise the bid further.
Also, keep in mind that you have to go in with 15% in cash when you buy a new home. Start saving for the cash deposit as soon as possible. Also expect that the amortization requirement will apply and may involve substantially increased expenses depending on the loan-to-value ratio.
The repayment requirement currently means that loans of 70% or more of the property’s market value must be amortized with 2 percent of the entire loan amount each year. At 70 down to 50% loan-to-value ratio, you must repay 1% each year. If the home is only mortgaged to 50% or less, you do not need to repay at all.
Although the amortization requirement can feel burdensome, one must not forget that it is a savings form. For every penny you amortize, your debt and thus your interest rate also fall. A healthy amortization culture benefits everyone.
5 things to consider about the loan promise
A loan promise is an assessment of your finances, not of a home. The bank does not know which home you will choose. The loan promise gives you a clue as to what your finances are and what you have left to live on after pay.
A loan promise is valid for a certain period of time.
The loan promise means that you can participate in bidding up to the amount you have in your loan promise. This is completely risk-free and you can undo a bid whenever you want.
Keep in mind that a loan pledge is not the same as the bank saying ok to lend money to the home you want to buy. You need to check with the bank before you sign a contract. Make sure you have a contact person who is available and gives you a quick response. When a bidding is completed, it can be a snap.
There is nothing to prevent you from bidding with two or three loan promises where the terms differ. Once you’ve won the bidding, you can simply play the banks against each other in retrospect or choose the promise that gives you the best terms.
Ahead of bidding
To command is about tactics. We do not intend to speculate on which strategy is best, but prepare yourself properly and do not rush.
Bidding starts with the broker contacting the customers who have reported their interest in the show. However, you do not need to have been on the show but can actually bid and buy an item completely unseen. But if you missed a bidding, try to get the broker to join in on an extra display.
It is the seller who decides how long a bidding should last and not the broker. Watch out for false bids. If the price rises sharply in a short period of time, a bump may be involved. You have the right to access a list of names of all bidders upon completion of the transaction.
Things to consider when bidding
You need a loan promise when you jump on a bidding.
Set a maximum limit on what you want to pay before you enter into a bidding. Why should you go all the way up to the loan promise limit if you don’t need to?
The bid is never binding on either the buyer or the seller until the contract is signed. You can withdraw a bid whenever you want.
Once you have won a bidding, your loan pledge should be converted to a loan application before you sign a contract. Call your contact person at once.
Not satisfied with the terms of the loan? Put up the entire loan at variable interest rates and change bank after a few months. It’s easier than you think.
How do I do if I want to borrow more?
If you want to borrow more, for example for new furniture, renovation or a new car, tell the bank in connection with the loan promise. You can borrow more on the home if the bank believes that the collateral is good enough.
Borrowing with the home as collateral is often much cheaper than taking a car loan or other unsecured loans. However, never borrow more than you need, although the interest rate can be temptingly low. The higher the loan you have, the less margins you have to borrow more the next time you need money or want to buy a larger home.
For all loans with the exception of student loans, 30% of the interest is deductible in the declaration. You will receive the money back in connection with the tax refund and the amount to be refunded will be shown on your tax return together with the amount of interest you paid to each lender.
You do not need to do anything active to use the deduction, but the lenders automatically send information to the tax authorities with information on paid interest.