When you set out to find your dream home, you have probably already decided what it should look like. You probably know in advance what the layout should be, where it should be, how much it should cost and everything else about the home. But have you actually decided whether you are looking for a cooperative home (andelsbolig) or an owner-occupied home (ejerbolig)? The difference between the two types of home matters a great deal for your ownership of the home and for what you will pay in future, both in monthly payments and on loans. So if you are unsure about the real difference between a cooperative home and an owner-occupied home, read this blog post, where we go through the two types of home and their different qualities. As always, you are welcome to comment on the post if you find it interesting, and to share it on social media or by email.
What is an owner-occupied home?
An owner-occupied home is the most popular type of home in Denmark, and it is estimated that more than half the population lives in an owner-occupied home of some kind. Put simply, an owner-occupied home is an independent property over which the owner has full control, within the building rules that apply in the area. The legal owner of the home is stated in its title deed (skøde), which is drawn up when the home is transferred or sold. So you only become the legal owner of the home once you are named as its rightful owner on the deed.
Living in an owner-occupied home has various advantages and disadvantages. One of the main advantages is that, as the legal owner, you decide for yourself what happens to the home. If, for example, you want to renovate the kitchen or bathroom, you do not have to ask an association for permission first. Living in an owner-occupied home therefore gives you more freedom to adapt the home to suit your needs. Another advantage is that the home may rise in value over time, so you can make money from buying it. This is of course not guaranteed, as the value of the home will depend on a range of factors that are impossible to predict, such as the state of the housing market in question.
The possibility that the home falls in value is therefore a disadvantage worth bearing in mind when you are considering buying an owner-occupied home. Another relevant disadvantage of owner-occupied homes is that you need a down payment of at least 5% of the purchase price to be able to borrow money for the home from a bank. This is mainly because the bank needs proof that you can afford to buy the home. Depending on how much the home costs, though, saving up 5% of the purchase price can be difficult. Even if you manage to save up the money, be aware that this does not necessarily mean you can borrow for the home. That only happens if the price of the home and the monthly payment are in line with your income and your ability to pay it back. Finally, be aware that you also have to pay tax on an owner-occupied home, which includes both property value tax (ejendomsværdiskat) and land tax (grundskyld). You can, however, deduct the interest on the loan from your tax.
What is cooperative housing?
A cooperative home differs from an owner-occupied home in many ways. The main difference, however, is that while an owner-occupied home belongs to an owner, a cooperative home belongs to an association. The association, known as a housing cooperative (andelsforening), both owns and runs the homes in which its members live. So you are not buying the home in the traditional sense, but a share in an association that gives you the right to use the home. The price of a cooperative home is therefore the contribution you pay to become a member, rather than the actual value of the home. For the same reason, it is usually considerably cheaper to buy a cooperative home than an owner-occupied home of similar quality.
One clear advantage of cooperative housing, then, is that you can pay significantly less than for a comparable owner-occupied home. Another advantage is that, although you will of course take out a loan yourself for your own home, the association is responsible for any other loans relating to the property. The members must therefore agree together on which loans to take out and how they are used. The loan then becomes the shared responsibility of the housing cooperative, not just yours. Needless to say, this can also be a disadvantage. The association has to reach agreement, which means that the majority decides. So the association may agree to take out loans that you personally do not support and that ultimately affect your finances. In addition, you cannot take out a Danish mortgage loan (realkreditlån) for a cooperative home, as you can when buying an owner-occupied home. This is a disadvantage, as you will need a cooperative housing loan instead, which often has a slightly higher interest rate than a mortgage loan.
Which should I choose?
Whether you should choose an owner-occupied home or a cooperative home depends largely on your wishes and priorities for your next home. In particular, look at your financial requirements and how much say you want over the home when working out which of the two is best, as these are the factors that set the two types of home apart the most. If you would like a home where you can be part of an association, and where you can pay significantly less than for many other comparable homes, a cooperative home is probably the best solution. If, on the other hand, you are able to take out a considerably larger loan and would like to be the sole owner of the home, an owner-occupied home is probably a sensible choice.
Either way, it can be a good idea to talk through your situation and thoughts with a professional buyer’s adviser, who can advise you based on your needs and requirements.
Buyer advice at Brikk
At Brikk, we offer professional buyer advice when you are looking for your dream home. Our buyer’s advisers have many years of experience in the industry and know exactly how to get you the best possible deal. We also have buyer’s advisers all over the country who are experts in their field and in the local area they work in. So if you have found the right owner-occupied or cooperative home, it is well worth booking a free consultation with your local Brikk buyer’s adviser today. The consultation is, of course, without obligation and is a good way to go through your housing situation with a professional.
As always, you are very welcome to comment on the blog post and share it on social media or by email. And if you have any ideas for future blog posts, you can write to simone@brikk.dk and tell us what you have in mind.
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