Financing — how to find out what you can afford before you look for a house

From the series “Property transactions, explained by specialists” — Lucian Dima in conversation with the professionals involved in a transaction.

Lucian: Laurențiu, let us take a very concrete case. A family tells me: “Lucian, we want to buy a house in Ilfov and we need a mortgage.” What should the first step be? Should they look for the house, or first see what financing they can get?

Laurențiu: I would start with the financing. Before you go to viewings you need to know the real budget you can work within.
It is not enough to say “we have two good salaries and I think we can borrow €150,000”. The bank looks at income, existing obligations, credit history and a number of its own criteria.
Ideally we know from the start what amount can be financed and what deposit needs to be ready.

Lucian: This is where the term pre-approval comes in. What does it mean in practice?

Laurențiu: In essence, we review the client’s financial situation before the final property exists.
That gives the buyer far more clarity. If we know the realistic budget sits in a certain price range, we no longer waste time on properties beyond what can be financed.
And there is another advantage: when the right property appears, the buyer is much better prepared to move forward with the lending process.

Lucian: So from my point of view as an agent, it solves a problem for me too. I no longer take a client to ten houses at €200,000 only for us to discover that their budget is €160,000.

Laurențiu: Exactly. And it is better for everyone: buyer, agent and owner.

Lucian: A lot of clients ask directly: “Which bank has the lowest interest rate?” Is that the right question?

Laurențiu: It is an important question, but it is not the only one.
A loan has to be looked at as a whole: the interest rate, the term, the costs, the insurance where it applies, the product conditions, the option of early repayment and, very importantly, the instalment the family can comfortably sustain.
The best option is not necessarily the one that looks best in an advertisement. Each client’s situation has to be considered.

Lucian: Fixed or variable interest?

Laurențiu: There is no universal answer.
We have to look at the offers available at that moment and at the client’s profile. A fixed rate can offer predictability for the period it is fixed, while a variable rate can move with the reference index and the contract terms.
What matters is that the person understands the scenarios and does not decide on the basis of the first month’s instalment alone.

Lucian: Let us get to the property. I find a client a house at €180,000. We negotiate, the owner accepts, but the bank’s valuer arrives at a lower figure. What do we do?

Laurențiu: Here you have to understand that the negotiated price and the value used for financing are not automatically the same thing.
If the value accepted by the bank is lower, the buyer may need to contribute more of their own funds, depending on the loan conditions.
That is why it is important not to stretch every last financial resource.

Lucian: What is the mistake you would most like buyers to stop making?

Laurențiu: Falling in love with a property before they know whether they can finance it.
The second would be using up all their savings on the deposit. Buying a house involves other costs too, and it is prudent to keep a reserve.

Lucian: Then give us the simple rule. Tomorrow I want to buy a house with a mortgage. What do I do?

Laurențiu: I check my financial situation, establish a realistic budget and look at the financing options. Then I start searching for a property within that budget.

Lucian: Perfect. So before we look for the house, we find out what budget we are setting out with.