Before taking out a home loan, give it a trial run for a couple of months

The home loan calculator shows how much the loan amount and monthly repayment might be. A home loan simulation, however, helps you answer an even more important question: how does the future home fit into your actual budget?

Anette Saiko, Youth Segment home loan manager at LHV, recommends trying out the monthly repayment for a few months before choosing a home. Anette, who recently bought a home with her partner, discovered firsthand just how many questions even a familiar process can raise when you’re the customer.

What is a home loan simulation?

A home loan simulation is neither a complicated table nor an official assessment of your borrowing capacity by a bank. It is a simple exercise that you can try out yourself as part of your daily life.

First of all, try to estimate the total monthly cost of your future home as realistically as possible. In addition to any home loan repayments, you should factor in utility bills, insurance, the maintenance fund, parking, and other fixed housing costs. Then compare the total with your current housing costs. Transfer the difference into a separate account on every payday for at least a few months.

For example, if your current housing costs are EUR 600, but the home loan repayments and other costs for your future home would total around EUR 900, set aside EUR 300 each month. It’s important to set money aside at the start of the month, rather than checking at the end of the month to see if there’s anything left.

That way, you’ll find out quite quickly whether the new expenses suit your current lifestyle. Can you still save money, pursue your hobbies, and manage unexpected expenses? Or does the budget already become too tight in the second month? When it comes to a home loan, it is not just a question of how much the bank is prepared to lend, but also of what monthly repayment amount you feel comfortable with.

The simulation helps you in any case. If the amount you have chosen is affordable, your self-financing and financial buffer will increase at the same time. If it turns out that your budget is too tight, you can adjust your plans before committing to a long-term obligation – look for a slightly more affordable home, save for longer, or think about which expenses you’re prepared to cut back on.

A familiar process seemed quite different when I was in the customer’s shoes

As a home loan manager, I have been helping young people buy their first home for three years, but I recently went through the whole house-buying process myself with my partner. Although I knew exactly how things worked because of my job, there was still a lot that was new to me as a customer.

We submitted applications to several banks. I hadn’t realised how much time it might take to fill in the various forms and attach bank statements. At some banks, the application also had to be digitally signed at the end. The first time this happens, it may give the impression that a final decision has already been made, although in reality, it is merely an application and not the conclusion of a loan agreement.

If you are submitting an application with a partner, please note that once one applicant has completed their section, the other must also confirm their details. Confirmation may not arrive immediately and may even come the following day. So there’s no need to resubmit the application five times; sometimes you just need to wait a little.

The offers arrived quickly. I was, of course, particularly pleased with how quickly and smoothly my dealings with LHV went, but above all, the whole experience confirmed to me just how important it is to compare banks’ offers as a whole. It is worth looking at both the figures and how quickly you receive answers to your questions from the loan manager, as well as how clearly the process is explained to you. I would advise you to view the offer from a broader perspective, because a home loan is a long-term commitment and, over the course of that period, you may need to amend the contract, repay the loan, sell your flat, take out home insurance, and so on. Since a home loan also involves everyday banking, it is worth considering the convenience of the regular banking operations.

A good loan manager helps you move from uncertainty to the next step

Throughout the process, my partner kept asking: ‘What happens now?’, ‘What’s the difference between these things?’ and ‘What must we do next?’ These are perfectly normal and valid questions. For a home loan manager, this is an everyday process, but for the customer, it may be the first and biggest financial decision of their life.

It is therefore important that the loan manager not only sends an offer but also helps the customer understand the next step. It was a lovely and educational experience for me, too, to be the one waiting for the manager to call. I realised just how much excitement and reassurance a single phone call made at the right time can bring.

Once you have chosen the apartment, the speed of communication becomes particularly important. I was pleased that I was able to call the loan manager straight away and quickly sort out the sale price, the down payment, and other details that had changed.

A professional broker who does not put undue pressure on the process and understands that the valuation report, the loan decision, and the visit to the notary all take time is just as important. We were assisted by Anzelika Lissova, a broker at Arco Vara, who responded quickly, gave practical advice, and helped keep the whole process stress-free.

The final stretch seemed to take the longest: waiting for the valuation report and the final loan decision. Once we had these, we were able to go to the notary to sign the contract under the law of obligations. We are already keen to move in.

Start before you’ve found your dream home

The greatest benefit of a home loan simulation is that it turns a vague idea into a proper plan. You don’t have to wait until you spot the perfect apartment on a property website. Start by working out the total cost of your future home, try fitting it into your current budget for a few months, and be honest with yourself about how you feel.

If the simulation goes well, you will have built up both your down payment and your buffer. If it doesn’t work, it doesn’t mean the experiment has failed – you’ve received a very valuable insight before committing to something that will last for 20 or 30 years.

And if you have any questions, it’s worth speaking to your bank while you’re still in the planning stage. You don’t need to know all the answers in advance when buying your first home. It is important to have the courage to ask questions, to assess your options honestly, and to take it one step at a time towards a home that is truly within your means.

See also the article ‘5 questions to ask yourself before taking out your first home loan’.