Mortgage and credit

When a flat is bought with credit the bank takes two decisions, not one: about the borrower, and about the flat that will secure the loan. Until both exist, every date in the purchase is a forecast. That is why the deadlines in the preliminary agreement are set backwards from the bank's last step rather than forwards from the buyer's convenience.

Two decisions, not one

The first decision is about your income, your existing obligations and your credit record. Banks often deliver it as a preliminary offer or an in-principle decision, valid for a stated time. That document is useful in negotiation, but it is not a credit agreement and it guarantees nothing for a specific flat.

The second decision is about the property. The bank checks whether the flat can be mortgaged at all: whether it exists as a separate registered object, whether its register data are in order, whether anything is attached to it, and whether the valuation supports the price. A flat can fail even when the borrower passes comfortably.

The valuation

The valuation is produced by an independent valuer working under the Law on the Fundamentals of Property and Business Valuation, usually chosen by the bank from a list it accepts. The buyer generally pays for it, and it belongs among the costs of purchase.

The part that catches people out: the bank calculates its share not from the price but from the lower of the price and the valuation. If the valuation comes in below the agreed price, the buyer covers the difference from their own funds. This is one of the most common late and unpleasant discoveries in a purchase, and the reason a preliminary agreement needs a condition clause about the bank's decision.

Terms the bank does not set

Some of the terms come from legislation rather than from bank policy. The Law on Credit Related to Real Property governs how information is provided and gives a reflection period during which the offer binds the lender while you are free to decline it. Responsible lending regulations issued by the Bank of Lithuania cap the share of income that may go to instalments and set the minimum contribution a buyer puts in from their own funds.

The practical consequence: the down payment share and the maximum instalment are not negotiable, so negotiate what is — the margin, the arrangement fee, the choice of insurer, and the terms for early repayment. Always ask for the standard information sheet and read it without hurry; the reflection period exists for precisely that.

The mortgage deed at the notary

A mortgage in Lithuania is created in notarial form and registered in the Real Property Register. In practice that means two deeds are signed at the notary's office on the same day: the purchase and the mortgage in the bank's favour. Both reach the register, and the extract afterwards shows the new owner and the mortgage together.

The order in which money moves is set by the bank: the credit portion normally reaches the seller after signature, once the bank's conditions are met. Where the flat being sold is already mortgaged to another bank, that older mortgage has to be discharged on the same day — a piece of choreography the notary and the two banks arrange between them, but one that affects the timetable, so ask about it early.

What usually blocks the purchase

The recurring reasons financing stalls:

• the flat is not yet registered as a separate object, so there is nothing to mortgage;
• the register shows a seizure or an unresolved mortgage;
• the valuation is below the price and the buyer cannot cover the gap;
• income is hard to evidence: a new job, self-employment, earnings from abroad;
• the cadastral data do not match the actual layout, because an alteration was never registered;
• the buyer is non-resident and the bank needs more documentation on the source of funds.

Nearly all of these are solvable when they are known early. Which is why the paperwork and the first conversation with the bank belong before the reservation, not after it.

This article is general information and is not legal, tax or financial advice. Your credit terms are set by your bank and your credit agreement.