Almost everyone reaches a point in life when the question of buying an apartment or house becomes relevant. Many, however, embark on this project with the help of a loan or state subsidy. But what are the current conditions for obtaining a mortgage? How much equity is required for purchasing a home, and what should one pay attention to? In this article, we gather the most important things to know about home loans.
It is important to clarify that unlike general-purpose loans, real estate loans are tied to a specific purpose. These loans are available not only for purchasing new or used properties but also for renovating, expanding, modernizing, or even building a home. Moreover, real estate loans can also be used for refinancing existing debts. As the conditions of mortgage loans can vary significantly between financial institutions (just as the degree of restrictions related to the loan's intended purpose), it is worth assessing which bank offers the most favorable terms.
Real estate mortgage loans can be divided into three categories as follows:
With state-supported home loans, the government covers a part of the market interest rate for the lender, provided that the necessary conditions are met. You can read more about these favorable options on the CSOK Plus Loan Program and Falusi CSOK websites.
Market-based loans, on the other hand, are not accompanied by state interest subsidies, so it is advisable to carefully explore the various market options. For this, the MNB (Hungarian National Bank) loan calculator can be a useful tool. It is also worth considering "Certified Consumer-Friendly Home Loans" that meet MNB's rating criteria.
What distinguishes mortgages from personal loans is that they allow for higher loan amounts, longer repayment terms, and typically more favorable interest rates. This is understandable since the real estate collateral provides an important guarantee for the bank. However, there are situations where a personal loan may be a more favorable option, particularly for smaller loan amounts (e.g., 1-2 million HUF), as no property valuation is needed. Furthermore, notary or attorney fees can be avoided, and the loan amount can be disbursed more quickly and used freely.
The purpose of the loan, any potential restrictions, and the desired loan amount should ultimately determine which type of bank loan product is the best choice.
Equity Required for Real Estate Purchases
It is also important to know that a home cannot be purchased solely with a mortgage loan. However, for purposes such as modernization or expansion, a loan can be taken without equity. The minimum equity required for a home purchase is determined by the MNB regulation on loan-to-value ratios. According to the regulation, for loans secured by real estate mortgages, the exposure at the time of loan evaluation should not exceed 80% of the property’s market value.
In practice, this means that for a home purchase, the borrower typically needs to have at least 20% of the property’s market value in equity. However, exceptions apply for applicants or co-borrowers who are under 41 years old and do not own at least 50% of a property or only own a property encumbered with usufruct rights. In such cases, as little as 10% equity may be sufficient for obtaining the loan. For loans related to properties under construction, the expected market value at the time of completion is considered as the property’s market value.
Equity does not only consist of cash. It can also include various investments, savings, non-refundable state or other housing-related subsidies, the value of property already owned, or the value of work completed in the case of construction loans. It is also possible to cover the required equity with a personal loan, though this is considered risky, as highlighted by the MNB press release.
Loan Amounts and Conditions
The amount of home loan one can obtain primarily depends on the MNB’s debt cap regulations. In this regard, not only the borrower’s income is important but also the market and collateral value of the property securing the loan.
The maximum loan amount that can be obtained (based on the market value of the property offered as collateral) is indicated by the Loan-to-Value ratio (LTV), while the maximum repayment burden is projected by the Debt-to-Income ratio (DTI), which is based on the borrower’s monthly net income.
The minimum age for a home loan is 18, and a stable income (from employment, self-employment, or even pension) is always required. Additionally, being listed in the KHR (Central Credit Information System) database could disqualify an applicant. Some banks may apply stricter requirements, such as a minimum age of 23, and the maximum age for loan eligibility is typically 70-75 years, but each bank has its own rules.
Other Important Considerations When Taking Out a Mortgage
When comparing loans, one of the most important parameters for many people is the Annual Percentage Rate (APR). APR reflects not only the principal and interest but also other fees, providing a clearer picture of the total expected cost of the loan.
Due to potential future changes in the interest rate environment, the associated risks should not be overlooked. There are fixed and variable interest rate loan products available, with some variable rate loans that can only adjust their interest rate after a pre-determined period (e.g., 5 or 10 years).
Many people are unaware that mortgage repayments are generally annuity-based, which means that although the repayments remain the same amount over the course of the loan, in the early period, a larger proportion of the payment goes toward interest, and the principal repayment is smaller. While this can be frustrating initially, it offers security since the repayment amount remains consistent throughout.
Although a loan might seem appealing or the situation stable, it is always advisable to make decisions cautiously and foresee potential future events. Once the loan amount, term, interest rate, and other key parameters are carefully considered, it is worth inquiring about any available mortgage protection insurance, which can be helpful in certain cases. Fortunately, careful decision-making can significantly reduce the risks associated with taking out a loan.
According to the KSH (Hungarian Central Statistical Office), residential mortgage loans in Hungary grew by 5.7% in the first half of 2024, and it is likely that the demand for home loans will continue to rise.
Finally, it is crucial to engage an expert during the loan application process, as every mortgage is unique to the borrower, and a skilled professional can greatly assist in choosing the right loan terms.
Global Realty Group supports its clients in decision-making and the application process with its own mortgage experts. We have connections with many banks and insurance companies, enabling us to find the best solutions for you and offer highly favorable, customized loan conditions. Feel free to contact us!
English (UK)
Magyar
Русский
中文(简体)
