Government guarantee for housing loans

A government guarantee for a housing loan can be granted to a private person who acquires a home for themselves or for their family as to be used as the primary dwelling.

A foreign citizen can also receive a guarantee if they are acquiring a home in Finland. The person must reside in Finland long-term and have a Finnish personal identity code. However, the person does not need a permanent residence permit, but it must be a longer-term residence permit.

The borrower does not need to be a first home buyer; it is possible to receive a government guarantee even if the borrower has already owned a home either in Finland or abroad.

The maximum loan period for a home ownership loan guaranteed by the government is 25 years from the date on which the loan or its first instalment was withdrawn. If the borrower takes a new loan to replace the home ownership loan, the maximum loan period is deemed to start from the withdrawal of the original loan or its first instalment.

At the request of the borrower, the bank may extend the loan period to a maximum of 27 years. Extension is only possible if the borrower’s ability to pay the loan has significantly deteriorated due to, for example, an illness, unemployment, or other comparable reason.

The bank must notify the State Treasury of any extensions to the loan period. The extension of the loan period must be thoroughly documented, and the documents retained until the loan has been repaid in full.

The regulation on maximum loan periods entered into force on 1 May 2006. Previous legislation applies to loan periods of home ownership loans withdrawn before this date.

The maximum amount of the government guarantee is 20 per cent of the remaining loan capital. In the case of an ASP interest subsidy loan, the government guarantee may be up to 25 per cent. The amount of the guarantee in euros will decrease as the loan is repaid in instalments. The percentage of the guarantee remains the same at all times.

The government’s liability for capital allocated to a home does not exceed EUR 60,000 in total. If a home ownership loan of more than EUR 300,000 is granted and the government guarantee is used for the maximum, EUR 60,000, the guarantee’s share of the loan will be less than 20 per cent. The actual percentage of the guarantee is used to determine the remaining amount of the government guarantee in euros.

If the euro amount of the guarantee does not correspond to the percentage of the loan indicated in the bond, the actual percentage based on the euro amount of the guarantee shall be used.

A guarantee fee for the government guarantee is charged in connection with withdrawing the loan or the first instalment of the loan. The fee is 2.5 per cent of the amount of the government guarantee. No guarantee fee is charged for ASP interest subsidy loans.

An example of the guarantee fee:

The borrower is eligible for the government guarantee only when building a detached house or purchasing a home. A government guarantee cannot be granted for a loan that is used to fund

• the right-of-occupancy fee for right-of-occupancy housing
• a renovation or basic improvements
• a complementary building or extensions.

Government guarantees are only available for remodelling if the cost corresponds to the costs of building a similar new building. This may be the case when the foundation of an old building is utilised for a new building.

Government guarantees are only granted for the purchase of a permanent dwelling. A part of the apartment may be given to the use of a person who is not a family member, as long as most of the apartment is used by the owner. A person may only have one permanent dwelling.

Loans for purchasing a second residence or an investment property are not eligible for the government guarantee. Investment properties include for example student apartments registered in the parents’ name or apartments rented to non-family members.

The borrower must acquire at least 50 per cent of a detached house, a detached house to be built, or shares or stakes entitling to the possession of an apartment.

A home purchased using the home ownership loan must be located in Finland. The home may not, however, be located in Åland, which has its own guarantee system.

The home must be located in an area where all-year residence is allowed.

Owner-occupied apartment

The government guarantee is available for shares or stakes in a housing company, housing co-operative or mutual real estate corporation. It cannot, however, be granted for shares in a real estate corporation.

A parking space serving the use of the home may be connected to the apartment if it is bought at the same time as the home. Parking spaces bought at the same time as the home may amount to a maximum of one parking space per borrower.

Detached house

A detached house is a building with only living quarters. It may include an outbuilding, sauna, garage or other premises closely related to living, if they are minor in relation to the size of the detached house.

If the real estate to be bought includes, for example, a horse stable, hall building or other premises that are not connected to housing, their share must be itemised in the bill of sale. They cannot be funded using a home ownership loan with a government guarantee.

Any premises that are not in residential use at the time of the purchase (e.g., summer cottages, schools or commercial premises) cannot be considered detached houses. The use must be altered by the seller before the apartment is acquired using the home ownership loan. Any alterations of the use by the purchaser bear no significance on the matter.

If two borrowers jointly acquire a home, both must possess 50 per cent of the home. The borrowers may have either a joint loan or two separate loans. If the loans are separate, government guarantee can be taken out either for both loans or only for one of them. In this case, pledging must take place in such a way that either the shares entitling to the possession of the apartment or the mortgage on the entire property to be purchased are pledged as the primary collateral of both loans.

The special pledge commitment shall include a statement that, if the home is sold, the bank will first use the amount of the purchase price corresponding to the borrower’s holding in the home for the payment of the credit in question.

Building a detached house

The cost estimate for the construction of a detached house provided to the bank is considered the purchase price of the detached house. The estimate should be calculated realistically because an approved cost estimate may not be changed afterwards. If the construction costs increase during the construction period, other funds or other loans must be used to finance the extra costs.

The proportion of one’s own work is not included in the cost estimate, because it does not add to the amount of the required loan.

The purchase price of a plot may be included in the estimate, if the plot is acquired as part of the construction project and funded with a loan that is both withdrawn at the same time and a government guarantee is applied to it. In this event, construction must start without delay after purchasing the plot.

The bank must monitor the progress of the construction project and link the withdrawal of new instalments to the progress of the construction work. The bank must retain any certificates of work phases or other evidence of contact with the parties implementing the construction project or the municipal building control authorities. If the need for a loan proves to be lower than the cost estimate, only the required amount of the home ownership loan may be withdrawn.

RS sites

A condominium loan share can be deemed a part of the purchase price of an apartment if the loan is recorded in the bill of sale or documented in another reliable way in writing. The prerequisite is that the share is paid to the condominium as soon as possible.

The condominium loan share must be valued to the apartment in accordance with the terms specified in the articles of association of the condominium. The total funding must be agreed at the time of the sale.

Any fixed additional and renovation work directly related to the apartment and commissioned by the purchaser can be calculated as part of the overall price of the apartment. The bank must verify the renovation work in a reliable manner, and the documents verifying the renovation work must be attached to the bill of sale.

The use of the government guarantee for sections of the loan withdrawn at a later time must be agreed in the loan negotiations at the time of the start of construction. This means that the government guarantee cannot be applied to the loan after the loan has been withdrawn. Even if the initial equity is funded using the borrowers own funds, the final loan must be agreed when own funds are used to start the project and construction starts.

Joint building

Government guarantees cannot be applied to loans that are used for the funding of initial equity required by joint construction projects in housing company form. The government guarantee can, however, be applied to the section of the company loan paid after the building is finished.

The bank must contact the State Treasury before applying the government guarantee to housing loans concerning other types of joint building projects.