Purchasing a home is one of the most significant financial decisions in most people's lives. Whether it involves acquiring a comfortable family residence, a cozy retreat, or a property with investment potential, this process requires both time and substantial financial resources. Usually, part of the funds is secured through mortgage financing. A clear understanding of the financial responsibilities, careful planning, and informed decision-making are key not only to a successful property purchase but also to your long-term financial stability. Below are some important aspects of the home-buying process:

 

Prepare Financially
The first step is to get your personal finances in order. Start by reviewing your current financial situation – your monthly income and expenses, and available savings. It is neither advisable nor realistic to proceed with purchasing a home without having enough personal funds set aside. Building up these funds may take time, so it is a good idea to plan early and save systematically. You may decide on a fixed monthly amount to deposit into a dedicated savings or investment account. This way, you will gradually gather the necessary amount without placing significant pressure on your standard of living. To speed up the process, consider ways to increase your income – for example, through additional work commitments. Other options for securing funds may include selling assets or seeking help from family.

Another important aspect is your current level of credit indebtedness. If it is high, you should act in time to reduce it, for example by repaying part of your obligations. Regularly paying your debts (see more on the topic in article "Debt Management") helps you maintain a good credit score and gives you access to better financing terms.

 

Define the Desired Features of the Home
The location, size, surrounding infrastructure, and other features of your future home depend on your individual situation and life plans. There are different ways to check indicative prices of properties that match your desired criteria – through real estate websites, agencies/brokers, social media groups, and more. It is a good idea to create a list of features for your future home, identifying which are must-haves and which you could compromise on. Of course, you need to be realistic about what you want and what is possible. Clearly, if you have modest income and savings, you cannot afford, for example, a spacious apartment in a prestigious location. Keep in mind that some features – such as size, location, exposure, and floor level – cannot be changed. Others, like furnishings or the condition of the property and common areas, can be improved later on.

 

Create a Realistic Budget Estimate
In addition to paying the purchase price, there are numerous other costs related to the transaction and the mortgage. Generally, you should allocate funds for renovation and furnishing. As a homeowner, you will also face monthly or annual expenses such as communal maintenance, local taxes, and fees. To avoid financial difficulties, it is important to create a detailed and realistic budget for the property purchase, taking into account all potential expenses and including a reserve for unforeseen costs. This will help you know how much you need for the entire process.

 

Financing the Home Purchase
Very few people can afford to buy a home entirely with personal funds. The usual combination includes borrowed funds through mortgage financing and personal savings.

·         Personal funds for deductible and other costs: Banks typically do not finance 100% of a home’s price, so you will need to contribute with your own money. The required deductible depends both on you and on the bank. For example, the bank might require a 20% deductible, but you may have the funds to cover half the cost of the home. During the loan application process, the property is appraised, and the amount of the loan is determined based on various factors, including the type and price of the home. Besides the deductible, you must have funds to cover all related costs

·         Home/Mortgage Loan: Taking out such a home/mortgage loan entails a significant and long-term commitment, so careful planning and a realistic assessment of your financial situation and prospects are essential. Learn more about home/mortgage loans here.

When applying for a mortgage loan, you should consider several important questions. First, determine how much financing you need by considering the property price and your available savings. Another essential question is how much you can realistically afford to borrow. A good starting point is to use an online loan calculator and explore different scenarios. Check what your monthly payments would be under different principal amounts, loan terms, annual percentage rates (APR), and interest rates. All other conditions being equal, a longer term means lower monthly payments but results in a higher total repayment. If the home is more expensive than you can currently afford, consider adjusting your approach – for example, aim for a more affordable property, postpone the purchase until you have secured enough funds, or plan to increase your income.

Also, think about which type of repayment would suit you better – equal monthly instalments (annuity) or payments decreasing over time. Decide whether you prefer offers with a fixed interest rate for part of the loan term, giving you predictable costs in the early years, or a variable interest rate for the entire loan term.

Research market offers by first reviewing general information on mortgage products that lenders provide. Whether you would receive financing and under what conditions is something you will find out once you apply for a loan with the respective bank. If, after assessing your creditworthiness and other factors, the lender determines that you meet the criteria, you will receive preliminary approval and a personalized offer detailing the financing terms in a Standard European Consumer Credit Information form, valid for a specified period. Final loan approval involves more detailed assessment of your finances and creditworthiness. The property intended to be mortgaged is also appraised, and the bank determines the maximum loan amount it can offer you. A legal inspection of the property is also conducted. Upon a positive assessment, the bank issues a binding offer in the form of a draft contract, including all individually agreed terms. The next steps are signing the loan agreement, completing the purchase at the notary, and registering the mortgage. After that, the loan amount is paid out, and you pay the seller.

 

Take into account the associated costs
Along with the loan, you will also pay various fees for services – such as bank fees for document review, credit risk assessment, collateral evaluation, and legal review. Different lenders may charge additional types of fees as well.

There are also additional costs related to the property purchase itself. Generally, you will pay a broker’s commission, notary fees, local property tax, state fees to Registration Agency - fees for registration of the notarial deed, and mortgage registration fees, collected by the notary when executing the transaction, which he pays on your behalf.

Do not underestimate the amount of additional costs. Familiarize yourself with all of them in advance and try to calculate them as accurately as possible. Also, factor in the costs for finishing, refreshing, and/or furnishing before you move in or rent it out.

 

Insurance Expenses
When a mortgage loan is granted, property insurance for the mortgaged home is mandatory (for more information see article "Property Insurance"). It is also common practice for the lender to require life insurance policy for the borrower (for more information see article "Life Insurances"). For both insurances, the lender is the beneficiary meaning that if a risk event occurs under the policy, the lender has priority to receive compensation to cover the outstanding loan balance.

 

What to Secure First – the Home or the Loan
Keep in mind that the process of obtaining a home/mortgage loan takes time. In a dynamic property market, it is wise to first check whether you would get financing, for how much, and under what conditions. This is done through applying for a loan and receiving preliminary approval.  This way, you can focus on properties within your budget and be ready to act quickly if you find a good option.

 

Declaring the property and taxation

You have already gone through the entire process and the purchase of your home has been finalized. What happens next?

After January 1, 2019, individuals who have purchased real estate are no longer required to declare it to the relevant municipality. This is done officially by notaries within seven days of the transaction. However, it is advisable to check with the municipality whether the information has been submitted and processed accordingly.

The Registry Agency also has to send the info to the local council within 7 days, and they have to figure out the annual property tax based on the tax assessment and let you know within a month.

The Local Taxes and Fees Act regulates the rules governing property taxation and the reliefs that may be claimed. For example, the tax on a primary residence is reduced by 50 percent, and if the primary residence belongs to a person with a disability of 50 to 100 percent, the tax is reduced by 75 percent.

There are specific rules for determining the tax due on newly constructed buildings, as the contractor or land owners are required to provide the necessary data to the municipality.

In addition to property tax, as the owner of the property, you will also owe a household waste collection fee. The amount is determined by the Municipal Council by ordinance, and the municipality should notify you of the amounts you owe for the relevant period and the payment deadlines.

 

Useful links:

Tariff for state fees collected by the Registry Agency

Buildings and waste fee – website of the National Revenue Agency

Law on Local Taxes and Fees