New home before selling your old one? A home exchange loan makes it possible.
The real estate market never stands still – families grow, and people’s needs and lifestyles change. Often, a situation arises where the current home becomes too small or no longer meets expectations, yet buying a new home before selling the old one feels risky or simply impossible. This is where a home exchange loan comes into play, offering a flexible solution for those who do not want to compromise on timing or choice.
In collaboration with Luminor’s Partner Relations Project Manager, Katre Kuusik, we take a closer look at how a home exchange loan actually works and who it is best suited for. The discussion is guided by Miston Kinnisvara real estate agent Jane Riidamets, whose daily experience in the property market helps highlight even the most practical challenges faced by those changing homes.
What is a home exchange loan and how does it work?
The main idea behind a home exchange loan is simple – it allows you to purchase a new home before your existing property has been sold. As explained by Katre Kuusik, this solution gives people the opportunity to make decisions calmly and thoughtfully, without the pressure to sell their home quickly below market value.
In practice, however, this means that for a certain period you may own two homes at once – both the new and the old. The bank typically allows up to 12 months to sell the existing property. This timeframe creates a safe buffer, giving you the chance to carry out the sales process at a reasonable pace and find the right buyer. At the same time, it assumes that the sales process is handled actively and that pricing and marketing are realistic.
Katre Kuusik Partner Relations Project Manager at Luminor and Jane Riidamets real estate agent at Miston Kinnisvara
In addition, the bank offers the option to use a principal repayment holiday. This means that until the old home is sold, you only need to pay interest, which helps ease the temporary financial burden. However, it is important to keep in mind that this is a temporary solution and the interest cost will still remain.
The entire process begins with a loan application. Submitting an application does not create any obligations, but it provides a good overview of your borrowing capacity and the solutions available in your specific situation. Often, it is during this step that it becomes clear which approach is the most reasonable, as each client’s financial situation, existing obligations, and plans are different.
If the property being sold has a loan with another bank, it must first be refinanced with Luminor
What should you definitely consider when taking a home exchange loan?
Although the solution is flexible, it is not suitable for everyone. Katre Kuusik explained that if the property being sold already has a loan from another bank, it must first be refinanced with Luminor so that the entire solution can be managed under one bank. However, this may not always be possible, as it depends on the remaining loan balance, the value of the property, and the client’s overall financial capacity. It is especially important to assess whether you are prepared to temporarily carry a higher financial burden, a point also highlighted by Jane Riidamets in her questions.
In such a situation, it is important to consider that both properties will temporarily serve as collateral for the bank, and your income must cover the full amount of obligations. This means the bank assesses the situation essentially as a new loan, taking into account both existing and new liabilities. If the old home is not sold within 12 months, it does not automatically mean a problem, but the bank will review the situation again. The next steps depend on how the client has fulfilled their obligations and their overall financial capacity. Katre Kuusik emphasized that it is important to keep the bank informed throughout the process and to communicate early if any difficulties arise.
If the property being sold is free of any loans, the process becomes somewhat simpler. In this case, the existing home can be used as temporary additional collateral, providing the bank with greater security. However, this does not automatically eliminate the requirement for a down payment. Generally, a minimum down payment of 10 to 15 percent is required, and each application is assessed individually based on the client’s income and the value of the collateral.
When it comes to collateral, high-quality residential real estate is preferred—properties that are liquid and suitable for living. This means the property should be something that can realistically be sold within a reasonable timeframe if needed. For example, forest land or a simple plot may not be suitable, as their value and sales prospects differ from residential real estate.
In summary, a home exchange loan is a practical tool for those who want to move forward without time pressure or excessive compromises. It allows you to purchase a new home at the right moment, while also requiring conscious financial planning, a realistic assessment of your capabilities, and readiness for a temporary increase in financial burden.
To find the best personal solution, it is worth taking the first step and submitting a loan application. This provides a clear overview of your options, and Luminor specialists will help find a solution tailored to your situation.
Learn more about Luminor’s home exchange loan terms HERE or contact our real estate agents for more information!
