The buyer sees - a nicely furnished apartment, the bank sees - the ownership list, the user permit, and the value assessment

When you buy a property through a mortgage, the bank does not only approve the credit based on your creditworthiness. They thoroughly analyze the property itself because it is the collateral, i.e., the security for the credit. Here are a few key points that banks check when analyzing the suitability of a property for securing a credit:

1. Ownership and land registry status

The first step for any bank is to check the ownership list: • Is the property in the ownership of the person selling it? • Are there any encumbrances, entries, mortgages, or hypothecs? • Is the ownership properly recorded, without any court or other legal obstacles? Example: The apartment is sold by the son, but the deceased parent is still recorded as the owner in the ownership list. The inheritance process is ongoing. In such cases, we need to wait for the process to be completed, as there is a possibility that other heirs may also appear.

2. Construction and user permit

Banks want to be sure that the property was built legally and has a permit for use. • The construction permit confirms the legality of the construction. • The user permit proves that the object was completed in accordance with the construction permit and is safe for habitation. Example: The apartment you are buying has a negative entry indicating that the user permit has not been attached to the land registry. In this case, you need to check the possibility of obtaining a user permit. If it is issued, most banks require it to be attached to the land registry to be recorded as a positive entry.

3. Elevation and specific parts

For most banks, the apartment must be clearly defined as an elevated part of the property, i.e., recorded as a separate unit within the building. Elevation ensures that the exact position, square footage, and purpose (e.g., apartment, commercial space) are clearly defined. If the elevation is not done, the bank may request another property with a suitable collateral. Example: The buyer buys a property in a family house where the apartments are divided as separate user units, but not elevated. In this case, the buyer acquires a co-ownership in the house, and the mortgage is possible only if all co-owners give consent. An alternative is for the bank to request another property as collateral.

4. Value assessment of the property

The bank's authorized appraiser prepares an independent value assessment of the property's market value. The loan amount depends on this assessment, not on the agreed purchase price. It is essential to note that the appraised value does not include the furniture. The buyer sees – a nicely furnished apartment, the bank sees – the ownership list, the user permit, and the value assessment It is also essential to pay attention to the loan-to-value ratio (LTV). While some banks approve a loan up to 1:1, most banks approve a loan amount lower than the assessed value, usually between 80% and 90%. • If the assessment is lower than the purchase price, you must cover the difference with your own funds. • If the bank approves a loan up to 80% or 90% of the assessed value, the difference must be covered with your own funds (e.g., savings or a non-purpose loan with different conditions than a mortgage). Example: The purchase price often includes fixtures and furniture, but the bank values only the property as an object. Such a discrepancy may lead to unforeseen financial obligations, which is essential to consider before making a purchase decision.

The property must meet both the market and the bank

You may have found an apartment that you like, but if it does not meet the bank's criteria, its purchase through a mortgage may be delayed or even impossible. Before making a final decision, signing a pre-contract, or making any payment, it is essential to check all aspects of the property and financing options to make an informed and secure decision. That is why there are loan intermediaries to help you. The article was written by Martina Mataić Škugor Original article

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