“Residents sometimes think that the bank’s decision is determined solely by the amount of income, but in practice, the entire financial picture is assessed. It is important not only how much a person earns, but also how they manage their finances, whether they fulfill their obligations on time, what portion of their income is already allocated to other loans, and whether they have accumulated a sufficient financial reserve. The clearer this picture is, the higher the chance of receiving a positive decision,” says L. Žukovė.
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Insufficient or unstable income
One of the most important criteria when evaluating a housing loan application is the client’s ability to meet financial obligations on time.
“The bank assesses not only the amount of income but also its stability. If the income is irregular, the workplace has recently changed, the person has not yet completed the probation period, or a large part of the income consists of unstable bonuses, self-employment, or royalties, the bank may evaluate the client’s ability to repay the loan more cautiously,” notes L. Žukovė.
The bank evaluates more than just income
Even a person who earns enough can receive a negative decision if they already have many other financial obligations.
“Consumer loans, leases, credit card limits, or other obligations reduce the ability to take on additional financial burden. The bank assesses the overall ratio of monthly payments to income and ensures that the client will have enough funds left for daily expenses and unforeseen cases,” emphasizes the expert.
She adds that when planning to apply for a housing loan, it is worth reviewing existing obligations in advance and, if possible, reducing or fully covering some of them.
One late payment can have long-term consequences
L. Žukovė points out that the bank evaluates not only the current but also the past financial discipline. Late loan or other obligation payments, unpaid debts, or frequent delays can negatively affect the decision.
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“Even if the financial situation is currently good, the credit history shows how a person fulfilled obligations in the past. Therefore, it is worth ensuring that all payments are made on time and resolving any inaccuracies in the credit history before applying to the bank,” says the expert.
Down payment – more than just a formal bank requirement
Another common reason why a housing loan application may be rejected or postponed is an insufficient down payment. In Lithuania, in most cases, it must be at least 15% of the purchased property’s value, and the remaining amount can be financed by the bank.
“The down payment is not just a formal requirement. It shows that a person can consistently save and is financially prepared to take on a long-term commitment. Therefore, before starting to look for a property, it is worth not only ensuring that at least the minimum required amount has been saved but also assessing whether a financial reserve will remain for unforeseen expenses. This helps avoid situations where additional borrowing is needed after purchasing a property,” emphasizes L. Žukovė.
The purchased property also influences the decision
When making a decision about a housing loan, the bank evaluates not only the client’s financial situation but also the real estate itself. Since the purchased property becomes the loan collateral, it is important to ensure that its legal status is clear, the market value is justified, and the property meets financing requirements.
“Buyers often think that if they meet all the bank’s requirements, the loan approval depends only on their income or credit history. Additional questions usually arise when purchasing an unfinished construction object, arbitrarily reconstructed or legally unsettled property, a building in very poor technical condition, or an object with limited market liquidity. In such cases, additional documents may be required, and sometimes the bank may decide not to finance such property,” notes the head of housing finance at Luminor bank.
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