Björn Berg answers questions by the readers of online news outlet Vísir.

A 30-year-old man asks:

IIt will be lovely to have you back in Iceland, but you’re right to see this as a big step. It’s worth preparing carefully.

You’ll need to think about the down payment, borrowing rules, the mortgage itself and how you plan to pay it down over time.

What do you need before you can get a mortgage?

In my courses on mortgages, this part has grown quite a bit in recent years. A lot has changed, and there are several things you should understand before you start house hunting.

How large can the mortgage be?

As first-time buyers, you’ll need to save at least 10% of the purchase price.

That doesn’t automatically mean a lender will offer you the remaining 90%. Lenders have different rules on maximum loan amounts, and their limits can vary quite a lot.

It’s also worth noting that buying with a very small down payment can make it harder to refinance later if better terms become available. Refinancing rules are not always the same as rules for a new home purchase.

In addition, a purchase with a high loan-to-value ratio may involve two or more loans, and those can sometimes be quite expensive.

So, if it’s possible, it’s wise to aim for a down payment of at least 30%.

Central Bank rules and other requirements

Under recent Central Bank rules, your mortgage payments may not exceed 40% of your disposable income when buying your first home in Iceland.

You’ll also need to pass a payment assessment / credit score evaluation. Your credit rating will be considered, and the lender may also look at things such as how long you’ve lived in Iceland or, if you wish to borrow from a pension fund, for how long you have been been paying into it.

For people moving back to Iceland, this can matter. It’s not only about how much you earn. It’s also about how the lender views your overall financial position.

Saving for the down payment

The best general advice I can give you is this: don’t make the process too complicated.

Prepare well, decide on a plan and then stick to it.

A good first step is to sign up for supplementary pension savings when you move back. Under current rules, you may be able to use that saving tax-free towards the down payment on your first home.

You should also protect your savings plan from the things that could knock it off course. That means keeping a necessary emergency fund and saving regularly for costs you know are coming, such as replacing a car, Christmas spending or other predictable expenses.

Then create a household budget.

Work out how much room you really have for saving each month. Once you know that number, you can use savings calculators to estimate either how long it will take to reach your goal or how much you can save within a fixed period.

Remember that house prices may rise while you’re saving. That means the amount you need may be higher by the time you’re ready to buy than it would be today.

Once you start saving, make the process automatic and regular. Don’t rely on remembering to move money at the end of each month. Set up the transfer in advance.

Which savings options make sense?

You ask whether you should use savings accounts. That may be a good option, but it depends partly on how long you expect to save.

You’re right that bank deposit rates have been quite good recently. Savings accounts can be convenient, stable and inexpensive. It usually doesn’t cost anything to deposit money into them, and for money you may need within the next few years, that stability can be valuable.

Housing savings accounts may also be worth looking into. At age 30, it’s not too late to consider them, and they often offer relatively high interest rates.

Some people prefer to use investment funds when saving for a home. That can also make sense in some cases, but funds vary widely. You need to understand the costs, possible fluctuations, expected returns and how easily you can access the money.

The main point, though, is to keep saving and put as much aside as you reasonably can.

In many cases, your saving habits will matter more than the interest rate.

Remember house price growth

If house prices rise during the saving period, the goal can move further away even while you’re doing everything right.

That’s why it can be useful to use the calculator above, that takes possible house price increases into account. It gives you a more realistic picture of how long the saving period may be and how much you may need to save.

What type of mortgage will you take, and from whom?

Start by finding out where you may have access to loans.

If you’ve previously paid into Icelandic pension funds, check whether any of them may be willing to lend to you. Compare their terms with what the banks offer.

Then read the small print.

The goal, of course, is not only to get a mortgage. The goal is to choose a mortgage that suits your payment capacity and helps you build up equity over time.

I hope it goes well for you.