Can you get a mortgage loan without your own savings?

Yes, it may be possible to get a mortgage loan without your own savings. The Finnish loan-to-value regulation does not automatically mean that you must have savings. Instead, it limits the loan amount in relation to the collateral provided for the loan. If your repayment capacity is sufficient and the loan has adequate collateral, it may be possible to finance the full purchase price of the home with a mortgage loan.

Many people planning to buy a home think that it is not possible to get a mortgage loan without 5 or 10 per cent of their own savings. This is understandable, as the loan-to-value cap and the buyer’s own contribution are often discussed together.

Strictly speaking, however, the loan-to-value cap does not require large savings. From the regulatory point of view, what matters is that the loan has sufficient collateral. This means that a lack of savings alone does not mean that getting a mortgage loan is impossible.

The loan-to-value cap concerns collateral

In Finland, mortgage lending is governed by the maximum loan-to-value ratio, commonly referred to as the loan-to-value cap. According to the Finnish Financial Supervisory Authority, the amount of a mortgage loan may not exceed 95 per cent of the fair value of the collateral at the time the loan is granted. In practice, this means that the buyer must have at least 5 per cent of their own savings or a sufficient amount of other collateral.

The important part is the phrase “or a sufficient amount of other collateral”. It means that the missing part of the loan does not always have to be covered with money from a savings account. It can also be covered with acceptable additional collateral.

For the loan-to-value cap, the decisive factor is not only the amount of the buyer’s savings, but how much collateral is available to secure the loan.

Additional collateral can solve the situation

When the collateral value of the home being purchased is not sufficient on its own to secure the full loan amount, additional collateral is needed. Additional collateral can be, for example, a pledge over another home, a deposit, other real collateral, or a guarantee solution accepted by the bank as collateral for the loan.

A traditional alternative has been third-party collateral, where a parent or another close relative pledges their own home as collateral for another person’s mortgage loan. This can work, but it ties the collateral provider’s assets to the loan and may also affect their own financial flexibility.

This is why many home buyers want to find additional collateral without tying another person’s assets to their loan. Garantia’s Residential Mortgage Guarantee can offer a bank-approved additional collateral solution for this need.

Garantia’s Residential Mortgage Guarantee as additional collateral

Garantia’s Residential Mortgage Guarantee is additional collateral provided to the bank for a mortgage loan. With the guarantee, the bank can receive the required collateral for the part of the loan that is not covered by the collateral value of the home being purchased.

In practice, a mortgage guarantee can help in a situation where the buyer has sufficient repayment capacity, but has not yet accumulated enough savings or does not want to use all their savings for the home purchase.

When the home being purchased is supplemented with additional collateral accepted by the bank, the loan may cover up to the full purchase price of the home. This is not an exception to the loan-to-value cap. It is a situation that complies with the loan-to-value cap: the loan amount can be higher because there is more collateral.

Practical example

The situation is familiar to many people: you find a suitable home, your income would be sufficient to service the loan, but you have not yet accumulated enough savings.

If the EUR 60,000 additional collateral is covered with Garantia’s Residential Mortgage Guarantee, sufficient collateral can be provided for the full EUR 200,000 loan. In this case, based on the bank’s assessment, the buyer may be able to finance the home entirely with a mortgage loan without their own savings, provided that the bank’s other lending criteria are met and the home is located in an area covered by Garantia’s guarantee.

Does saving for a home still make sense?

Yes, it does. Even if it may be possible in some situations to get a mortgage loan without your own savings, saving is still sensible. Accumulating your own funds often improves the buyer’s overall position and may reduce the amount of additional collateral needed.

If the buyer has their own savings, the required amount of Garantia’s Residential Mortgage Guarantee is smaller. In that case, the fee payable for the guarantee is usually lower than in a situation where the entire collateral shortfall is covered with the guarantee.

On the other hand, you do not always have to use all your own funds for the home purchase. In many cases, part of the savings can be left as a buffer for unexpected expenses or invested for long-term wealth-building.

Repayment capacity is decisive

Additional collateral can solve the question of whether the collateral is sufficient, but the loan decision is always also based on the buyer’s repayment capacity. The bank assesses whether the buyer’s income is sufficient to cover loan servicing costs and everyday expenses, even if interest rates rise or their financial situation changes.

For this reason, a mortgage loan without savings cannot be promised in advance. However, it may be possible if repayment capacity is sufficient and the loan has adequate collateral. In practice, the best way to find out is to discuss the matter with one of Garantia’s partner banks.

Why is the loan-to-value cap often misunderstood?

The loan-to-value cap is often summarised as: “the buyer must have 5–10 per cent of the purchase price in their own savings.” This is an oversimplification. A more accurate way to put it is: the buyer must have 5–10 per cent of their own savings or an equivalent amount of other collateral accepted by the bank.

This is why the loan-to-value cap does not prevent a 100 per cent mortgage loan when sufficient additional collateral is provided in addition to the home being purchased. This is not about circumventing regulation. It is about ensuring that the ratio between the loan and the total value of collateral remains within the permitted limits.

Misunderstanding: you must always have 5–10 per cent of the purchase price in your own savings.
Correct interpretation: the buyer must have either their own savings or other collateral accepted by the bank in an amount sufficient to meet the collateral requirement set by the loan-to-value cap. Garantia’s Residential Mortgage Guarantee is a form of collateral referred to by the regulation when the bank accepts it as part of the loan collateral.

Frequently asked questions about getting a mortgage loan without savings

Below you will find answers to the key questions related to the topic of this article. More information about Garantia’s Residential Mortgage Guarantee is available in the frequently asked questions section of the website.

Can I get a mortgage loan without my own savings?
Yes, it may be possible if your repayment capacity is sufficient and the loan has collateral accepted by the bank. Instead of your own savings, the missing collateral can in some situations be supplemented with additional collateral, such as Garantia’s Residential Mortgage Guarantee.

Where can I apply for Garantia’s Residential Mortgage Guarantee?
You can apply for Garantia’s Residential Mortgage Guarantee in connection with your mortgage loan from one of Garantia’s partner banks. The buyer does not need to apply for the guarantee directly from Garantia. The bank assesses the loan application, repayment capacity, collateral need and whether Garantia’s guarantee could be suitable as part of the loan arrangement.

Can Garantia’s Residential Mortgage Guarantee replace missing savings?
Garantia’s Residential Mortgage Guarantee can help cover a collateral shortfall, but it does not alone determine the loan decision. The bank always assesses the customer’s repayment capacity, collateral and the loan arrangement as a whole.

Summary

In some situations, it may be possible to get a mortgage loan without your own savings. The most important thing is to distinguish between savings and collateral. The loan-to-value cap limits the loan amount in relation to collateral, not directly in relation to the balance of a savings account.

If the collateral value of the home being purchased is not sufficient, collateral can be supplemented with, for example, another home or a mortgage guarantee. When repayment capacity is sufficient and the loan has adequate collateral, financing the full purchase price of the home with a mortgage loan may be possible.

Are you considering buying a home, but have only accumulated a small amount of savings so far? Contact one of Garantia’s partner banks and ask whether Garantia’s Residential Mortgage Guarantee could be suitable as part of the collateral for your mortgage loan. The bank will assess your repayment capacity, collateral situation and loan arrangement as a whole.

Author

Ville Korte
Head of Sales and Marketing
Garantia

The author has over 20 years of experience in mortgage lending at Garantia and in the banking sector.