Ljubljanica River
Long for a Ljubljanica riverfront property? You might need to borrow some money 😉

In the previous post on the subject of real estate in Slovenia we arrived at the question of: How does one handle all the local and imported real estate fuel and finances the purchase of real estate in Slovenia?

Ideally, you have money readily available and pay in cash you pull from under your personal or corporate pillow. This is the so-called “own financing” option. If you’re a mortal like Dr. Fil, however, several types of loans are available to you.

On the Slovenian financial market, you can choose between regular loans secured by insurance, guarantor or the property itself (mortgage), financial products that combine loans with life insurance or investment in mutual funds, or so-called lease-loans (hire-purchase).

Loans:

    Financial houses offer three main types of housing loans differing with regard to the collateral for the loan:
  • housing loan (stanovanjsko posojilo) secured at an insurance company, with a term of repayment of no longer than 15 years (suitable for smaller loans, approved quickly). In case of default, the bank assigns the loan to the insurance company. If taking out this type of a loan, you may want to consider taking out a life insurance policy as well, which will cover the debt repayment in case of the borrower’s death and the debt will not be transferred to his or her heirs;
  • real estate loan (nepremičninsko posojilo) secured by guarantors. The conditions are similar to those above;
  • mortgage loans (posojilo, zavarovano s hipoteko); these loans usually allow the longest repayment terms up to 30 years (although some financial houses already offer the same periods for “leasing” loans), depending on the age of the borrower. Usually, the interest rates for mortgages are lower than in other types of loans. The rate will depend on the borrower’s creditworthiness (and negotiation skills). In addition to the principal and interest, this loan comes with the added expense of loan approval, attorney, notary and entering the lien into the land register. In case of default, if all else fails, the court seizes the property, auctions it off and uses the proceeds to pay the bank’s claim.

Combined financial products, for example:

  • a combination of a loan and life insurance (repayment term up to 20 years) with the borrower paying only the interests on the monthly basis, which allows the bank to approve a higher amount as the monthly instalments are smaller. In addition, the client pays a monthly life insurance premium. In the end, the principal is paid from the investment life insurance sum or – in case of death – from the life insurance falling due;
  • a combination of a housing loan and an investment in a mutual fund. This package is suitable for those with a high income who already own their homes, but would like to go into rental. The borrower pays the interests every month and pay the principal with the yields of the mutual funds. The borrower bears the risk of the mutual fund yields failing to meet the projected results and not sufficing for repayment of the loan.

Lease-loans:

      Leasing is a contractual relationship between the lease-loan lender and lease-loan borrower (the buyer, i.e. you). The lender allows you to use the subject of the lease (in this case an apartment or house etc.) for an agreed term and surrenders so-called ‘economic ownership’ of the property in return for which the borrower pays monthly instalments for the agreed term of the lease. When the last instalment is paid, full title is transferred from the lender to the borrower and as of that moment the property is no longer owned by the bank or financial house but by yourself.

      Since the lease-loan means that the financial house acquires ownership of the property, the additional security required is usually considerably lower than in case of taking out other loans described above. Financial houses can therefore require much smaller down payments (usually 20 to 30 per cent) on average than in case of other loans. Furthermore, when natural persons (rather than a legal entity) are concerned, the bank considers not only salary, but all types of income in determining one’s creditworthiness. This does come at a cost of a usually higher interest rate, but enables you to buy property even with minimal liquid assets. If the borrower can prove the ability to pay the instalments and can use another property or guarantors as security, the financing can go up as high as 100% of the property value.

Useful links:

In the next post in this series, we will look into the expenses and taxes related to the purchase or sale of real estate in Slovenia. Unfortunately, Slovenian politicians have not yet been overheard saying “read my lips” but dr. Fil will let you read hers 😉