Swedish home purchase with no loan condition: SEK 350,000 at risk
If the bank says no after you sign, you are still bound, and a SEK 350,000 deposit can be lost. A written loan condition lets you reverse the sale.
You win the bidding at SEK 3,500,000 and sign the contract the same evening. A week later the bank turns down your loan. If the contract has no loan condition, you are still bound by the purchase. Two clauses can protect you in Sweden: the loan condition ("låneförbehåll") and the inspection clause ("besiktningsklausul").
Why you need the conditions
A bid binds no one. The Swedish Consumer Agency ("Konsumentverket") says the purchase becomes binding only when buyer and seller have signed the purchase contract ("köpekontrakt"). After that there is no right to change your mind.
A condition that decides whether the purchase stands must be written into the contract. That follows from chapter 4, section 3 of the Land Code ("jordabalken"). A verbal agreement with the seller is not enough. Such a condition also cannot run for more than two years.
For a co-op flat ("bostadsrätt"), the transfer agreement must be in writing and signed by both parties. That is set out in the Co-operative Housing Act.
The loan condition
A loan condition says the purchase is reversed if you do not get a loan. The Consumer Agency points out that a mortgage pre-approval ("lånelöfte") is not a guarantee. The bank can refuse the loan later if it thinks the home is not worth the loan amount.
Here is how that can play out. You have a pre-approval for SEK 3,150,000, which is 90% of SEK 3,500,000. The bank values the house at SEK 3,200,000. At 90% of that value, the bank will only lend SEK 2,880,000. You are SEK 270,000 short.
A good loan condition includes:
- A date by which you must tell the seller that you have not got a loan.
- That the notice must be in writing.
- That the deposit ("handpenning") is paid back if the purchase is reversed.
- That neither party can claim damages when the purchase is reversed.
The condition is there for when the bank says no. It is not a way out if you simply changed your mind.
The inspection clause
If you cannot inspect the house before signing, you can add an inspection clause. The Consumer Agency says you only have a right to inspect after signing if such a clause exists. It advises making the clause open enough that you can cancel without giving a specific reason.
There are two kinds of clause:
- Open clause. You can reverse the purchase if you are not happy with the inspection, without explaining why.
- Conditional clause. The purchase is only reversed if the inspection shows a certain kind of fault, or faults above a certain cost. You and the seller can then disagree about whether the fault is big enough.
The clause has a deadline. Book the inspector as soon as you sign. If you miss the deadline, you can no longer use the clause.
What happens without a condition
The Supreme Court ruled on such a case in NJA 1982 p. 613. The buyer signed before her loan was confirmed, because the seller was in a hurry. The loan fell through.
The contract let the seller cancel the sale and keep the deposit as damages. The court said such a term is not unfair in itself. In that case the amount was cut from SEK 37,500 to SEK 12,000, but the buyer still had to pay.
The deposit is usually 10% of the price and is normally paid within a week of signing. On a SEK 3,500,000 house that is SEK 350,000. That is the money at risk.
The seller has to agree
A condition needs the seller's agreement. In a hot bidding round, a seller may choose a buyer without conditions. Whether you take that risk is your choice. A firm pre-approval and an inspection before signing reduce the need for conditions.
Checklist before you sign
- Have an up-to-date pre-approval and ask the bank how it values the home.
- Inspect before signing if you can. If not, add an open inspection clause.
- Check the deadlines in each condition and how you must notify the seller.
- Make sure the deposit is paid back if a condition is triggered.
The rest of what a purchase contract should contain is in the contract chapter of our real estate crash course.
Sources
- Bidding when buying a home, Swedish Consumer Agency (in Swedish)
- Tips for buying a house, Swedish Consumer Agency (in Swedish)
- Land Code (1970:994), Riksdag (in Swedish)
- Co-operative Housing Act (1991:614), Riksdag (in Swedish)
- NJA 1982 p. 613, lagen.nu (in Swedish)
- Signing the contract, Nordea (in Swedish)
This content is general information, not financial or legal advice. Bolån Radar collects data from banks and authorities and cannot guarantee that it is complete or free of errors. Talk to your bank or an adviser before you decide.