So you want to buy an apartment in Finland. Or maybe a house. I have both good news and bad news. The good news is that the apartments/houses are an asset class that has gone up in value in history. In addition, instead of paying rent to someone and making them rich, you will gain wealth by paying off the mortgage. But the bad news is that how the heck do we get started with this? Don’t worry. I will teach valuable stuff for each step in the process.
Step 1: Apply for a mortgage
You first need to apply for a mortgage (asuntolaina in Finnish) by submitting a loan application on a bank’s website. The bank wants to know your income & expenses, your assets, and your other loans and liabilities. The most important thing is that you have a predictable and regular income. At this stage, it’s not necessary to have that suitable apartment or home in mind yet.
After some days or weeks, the bank will get back to you to arrange a time for a loan negotiation (lainaneuvottelu in Finnish). You will talk everything through in more detail, and it’ll take around 30 minutes. After this, the bank will hopefully give you a loan promise/offer (lainalupaus in Finnish). They will tell you how much they are ready to lend.
Here is a pro tip: The easiest way to start is with your bank, but don’t only ask from your bank, ask multiple banks. Also, do not accept the first offer you get because that’s most likely the most profitable for the bank. You want to ask maybe three to four different banks and negotiate with them. Because here’s the deal: When you get your first offer, then you can go to the second bank and tell them: “Hey, this other bank gave me this. Can you match that or give a better one?” Then you can use the offer as leverage in the negotiations, which can save you thousands of euros.
The loan offer
So what do the offers include? First of all, there is the borrowing rate, and it consists of two components: the margin + the reference borrowing rate (Euribor 12 months usually). The margin is the profit that the bank will make from the loan. Euribor is the reference rate the banks in Europe use to lend money. During the past years, Euribor has been even negative. That means that the bank would have to pay you. The banks don’t want to do that, so they set it to zero. In other words, it’s very cheap loan money.
The Euribor 12 months means that the rate is revised every 12 months. In the current market situation, if you can get the total borrowing rate between 0.4 to 0.7, you have a decent rate. My girlfriend and I got 0.4 for our apartment.
Then there’s a setup/organizing fee (järjestelypalkkio). It is just a fixed cost for the bank to charge to set up the loan. There are huge differences between the banks. The highest we got was 900 euros, which was a rip-off, but we eventually managed to negotiate it down to 300 euros. I’ve heard some people managed to arrange to even zero. You can do the same by asking for different offers and leveraging them in the negotiation.
Then there’s a monthly fee (lainanhoitokulu), usually around 2 – 2.5 euros. There is not much you can do about this.
The total interest rate usually fluctuates as the Euribor rate is revised every 12 months. There is also an option to get a fixed rate, but those are usually a little bit more expensive.
Step 2: The collateral
When you apply for a mortgage, the banks always want a 100% collateralized loan because if you cannot pay it back, the bank won’t make a considerable credit loss. The good news is the apartment itself usually has 70% collateralized value.
Let’s take a quick hypothetical example. We have an apartment that would cost 100 000€ (debt-free price), and you would have 10 000 € money to put in (omarahoitusosuus) in Finnish). That means that you would need a 90 000€ loan, and this needs to be fully collateralized. The apartment itself gives 70 000€ of collateral value.
That means that we have to find 20 000€ more worth of collateral. It could be cash or other securities like stocks, another home, or index funds. But if you don’t have any of these, don’t worry. You can use, for example, the government guarantee from the state of Finland or a third-party guarantor called Garantia. The banks will tell you more about this when you have the loan negotiations.
Step 3: Looking for the apartments
Next, we have to start looking for those apartments. I’m going to show you a website for this called etuovi.com. The website is in Finnish only, but you can use Google translate. I recommend learning the essential terms in Finnish because they are crucial to understand. The screenshots below have translations using Google Translate. Another website you can use is oikotie.fi
First, you write the city/cities the type of apartment. Then the number of rooms. Remember that the number of rooms in Finland does not mean the number of bedrooms. You can also set the maximum price and minimum area. Then click more search criteria (Lisää hakuehtoja).
You can set all kinds of criteria, ranging from having a beach to having the pipe renovation done. Pay attention to the form of ownership (omistusmuoto) as it is essential. There are a few types of ownership but choose owned apartment if you want to buy a home (omistusasunto).
Another critical factor is land ownership (tontin omistus). It means who owns the land. If the housing company does not own the plot, they have to pay rent, affecting the living cost (usually an additional vastike payment). An optional rent plot (valinnainen vuokratontti) means that the apartment owner can redeem their share of the land. The owner does not need to pay the plot lease. Ideally, you want to avoid a rental plot.
Then click “Näytä kohteet” to see the apartments and click “Näytä kartalla” (show on the map). You can see homes on the map that meet your criteria. Click them to read more about them.
The housing company (taloyhtiö)
Below, we have a block of flats apartment built in 1965. You can view photos of the apartment and read general info about the apartment and the housing company. It’s essential to see if the apartment has any outstanding housing company loan (taloyhtiölaina). You can find this by checking the Velaton hinta (debt-free price). If there is “velkaosuus,” it means there is an outstanding loan. We can see that “Yhtiövastike,” we see it’s 405,35€, which consist of 330€ hoitovastike (maintenance charge) + 75,35€/kk rahoitusvastike (capital expenditure charge).
If you were to buy this, you could choose to pay the outstanding loan off with one go, or you can choose to pay it monthly through rahoitusvastike.
The other important paragraph is the “Taloyhtiö” The most important is the renovations are done and upcoming renovations in the future. Are they small or bigger ones? For the bigger ones, the company has to take a loan to finance them. And that can incur more costs for you.
A good blog post from Miha from Personal Finance tells about the different types of renovations. Check it out if you want to know more. Click here to read more.
The next step is to contact the realtor by sending a message through the website or calling them. You want to agree on a time for the viewing, and it’s possible to after office hours, too. There’s a joke that their realtors are working 24/7. You should also request the documents of the housing company. The realtor will send them to you in advance (via email usually), and you should look into them.
Step 4: Research the housing company documents
I will give you a quick rundown of each of the documents. I will leave a webpage with more detailed explanations. It’s in Finnish, but using Google Translate should help. Check out the link here.
- The first important document is the “Isännöitsijäntodistus”, the estate manager certificate. Here you should check that all that information matches with the listing. Other info you will find is the number of shares, the current owner and big renovations decided for this apartment.
- Then we have “Yhtiöjärjestys” = The Articles of Association. This is the company rules. There are two important things to check out.
- First of all you should look “Kunnossapitovastuu” = the table of liabilities. which tells what are the responsibilities between the company and the shareholders. For a example, there could be a clause that says that the shareholders are required to do the fixes inside the bathrooms. This is like an exception from the default. So keep an eye whether there are any exceptions.
- Secondly, there’s something called “Lunastuslauseke” = redemption clause. Let’s say if we made an offer and the seller would accept but there’s a redemption clause. We would have to wait 30 days to wait if any one of the shareholders (= the owners of the apartments in the company) want to use the redemption right. This means the can “steal” the sale and claim the apartment for themselves with the price agreed between the original buyer and sells. Redemption clauses are quite rare nowadays though, but just be aware if there is one in the company.
- “Toimitakertomus” the annual report, which is a verbal explanation of what has happened in the previuous year. You can get good general information how the company is doing: Are things going well or not?
- “Tilinpäätös” the financial statement. Here we the company in numbers. Is there lots of debt? Is the income covering the costs?
- “Talousarvio” = the budget for the upcoming year. Here we see, if there are any big expenses coming up in the near future.
- PTS (Pitkäntähtäimensuunnitelma, Long-term plan) or “Kunnossapitosuunnitelma (maintenance plan) is the plan for future renovations and repairs here, we can see what kind of renovations are coming for the next five or 10 years. that can also give you some good information.
The problem is that these documents are only in Finnish. So you either have to use your Finnish skills, use google translate, or have someone read them for you.
Step 5: Go to viewings
If everything in the papers seems okay, it’s time to go to the viewing. It takes around 15 to 30 minutes. Viewings are free of charge and do not commit you to anything. Look around the place, and prepare some questions to ask. A few good questions you can are for example:
- Why is the seller selling it now?
- How fast the seller wants to get rid of the place?
- Are there already some outstanding office and a quick story.
When we were buying our current place, we found out that a seller had found a new apartment and would move within a month. So they wanted to get this place sold out as fast as possible. That gave us some good information & leverage.
I recommend going to as many viewings as possible to learn the ropes and feel about different kinds of places. We went to around 10-12 places before making an offer.
Steps 6 & 7: Verify the home from a bank & make an offer
When you find a home that fits your criteria, then it’s time to make an offer. Before that, It’s a good idea to verify the potential home from the bank. The estate agent will help you to give you and often there is a template with the necessary information.
The most important is the price. You always want to offer a lower than the asking price because that’s an excellent way to say some money. A general rule of thumb is 10% less than the asking price. Try to find some reasons why you think that price should be lower. In Finnish, we have a saying: “Se ei ole tyhmä joka pyytää vaan se joka maksaa.” which means “The dumb one is not the one asks but the one who pays.”
The validity period (voimassaoloaika) is usually 24 hours. You don’t want to give too much time for them to consider. Also, the offer is a commitment (when buying housing shares, not detached-houses)! So when you make an offer, and the seller accepts, you are committed to buying the place with the conditions in the offer. If either party backs out of the deal, there’s a penalty of 4% of the debt-free (velaton hinta) price. Make sure that you are sure that you want to get the apartment. Counteroffers are also possible. In our case, the asking price for this apartment was 329K. We offered 315K. They made a counteroffer of 320K, which we eventually accepted.
If you are buying a detached house, the offer is not binding.
Steps 8 & 9: Finish the loan & sale details + make the transaction
If/when you get your offer accepted; congratulations! Next, you need to get back in touch with the bank, and then you formalize the terms and conditions of the loan details. The realtor and the banks will organize everything for the transaction and the sale. Did you know that you can do it digitally if you buy an apartment nowadays? You don’t have to go to the bank to sign any physical papers. The system is called DIAS (Digitaalinen Asuntokauppa, Digital Apartment Purchase System). The realtor will prepare the template for the deed of sale. You will need to check that all info is correct. The realtor will deal with all the paperwork with the bank, too.
Eventually, you will get an invitation to the Purchase Event (kaupantekotilaisuus in Finnish). If you use DIAS, you can complete the purchase online with a few clicks. If DIAS is not an option, you will meet with the seller, the realtor, at the bank. In our case, we also used DIAS. I was sitting topless on my sofa and bought a home. Pretty impressive stuff!
The banks and the realtor will take care of all of the paperwork for you, such as transferring the shares, filing the transfer tax, and informing the estate manager about the new owners. At the moment, this is not possible when you’re buying a house (omakotitalo), but I’ve heard it will be possible in the future.
After everything is official, the realtor will get in touch to give you the keys. Then, the home is yours! Congratulations!
Step 10: The transfer tax
I also want to mention a few words about the transfer tax.
When buying housing shares, you have to pay a 2% transfer tax from the debt-free price. If an apartment is sold for 100,000€, the tax is 2000€. For detached houses, you have to pay a 4% transfer tax (4000€ with the example above). Luckily, if you are a first-time buyer, you are exempt from this tax under certain conditions.
Are you buying a home soon? Let me know in the comments!
And if you want to know more about the finished homeownership system, click the link below.