Apartment Costs 180,000 Euros, but the Valuation Report Shows 165,000. What Happens to the Home Loan?

When buying a home, it may turn out that the price agreed upon with the seller is higher than the market value shown in the property expert appraisal. This can be an unpleasant surprise for the buyer, because making the transaction may require a much larger down payment than initially planned.

When buying a home, it is important to compare two amounts above all: the agreed selling price and the market value stated in the expert appraisal. If the market value is equal to or higher than the selling price, everything is fine from the buyer's perspective. However, if the expert appraisal is significantly lower than the selling price, the buyer will need a larger down payment or additional collateral.

"When applying for a home loan, the bank assesses both the person's creditworthiness and the property being purchased. Even if income would allow the desired loan amount to be repaid, the property being purchased must be sufficient collateral for the loan," explained Anne Pärgma, Head of Home Loans at Swedbank.

How much can the down payment increase?

Let's take an example of an apartment with a selling price of 180,000 euros. With a typical 15% down payment, the buyer would expect to pay 27,000 euros themselves and cover the remaining 153,000 euros with a loan.

However, suppose that according to the expert appraisal, the market value of the apartment is 15,000 euros lower than the selling price, or 165,000 euros. If the loan constitutes up to 85% of the collateral value, the maximum loan amount in this case would be 140,250 euros instead.

In this case, the buyer would have to pay 39,750 euros as a down payment, or 12,750 euros more than initially planned. This would total approximately 22% of the purchase price.

What options does the buyer have?

If the expert appraisal is lower than the agreed purchase price, it is worth discussing the price with the seller again. The expert appraisal can provide a justified starting point for this, although the seller has no obligation to change their price.

"Based on a lower expert appraisal, one cannot automatically conclude that the agreed price is unjustified. For example, the transaction price may include more expensive furniture or other furnishings that are not taken into account when assessing the market value of the property. In the expert appraisal, permanent furnishings can be taken into account, but not, for example, a sofa or dining table that can be taken from the apartment," explained Pärgma.

If the parties wish to proceed with the agreed price, one option is to cover the price difference with a larger down payment. In certain cases, additional real estate collateral may also be a solution, which can reduce the size of the required down payment. However, it should be noted that real estate provided as additional collateral also remains tied to the loan obligation.

Therefore, it is worth finding out as early as possible both your own loan options and the expected market value of the property being purchased. It is especially important to do this before taking on a binding purchase obligation or making a large advance payment. This way, the risk is reduced that a suitable home remains unpurchased because the necessary down payment turns out to be larger than expected.