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Mortgage and Financing in Prague
28. 8. 2017
Basic information about how to take out a mortgage on a property in Prague. Types of clients, requirements that the client needs to meet, most common Loan to Value ratio, average interest rates and what documents have to be submitted in order to apply for a mortgage. For any questions you can visit our "FAQ":http://www.philip-frank.com/en/prague-guide/9620485-faq-mortgage-and-financing-in-prague about mortgages or "contact us":#contact us at:
- Mobile: +420 602 544 858.
- Email: info@philip-frank.com
For information about the mortgage and financal services we offer please visit our "Mortgages and Financial services":http://www.philip-frank.com/en/our-services/mortgages-and-financing page.
Clients
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If you are a foreigner planning to take out a mortgage on a property in the Czech Republic, you should know there is a different set of rules applying for each category of clients:
- Czech Republic resident
- EU resident/non-risky countries
- Non-EU resident/risky countries
EU resident
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Mortgages for EU citizens are possible in similar conditions as for Czech citizens. Slovakian citizens specifically have a high chance of obtaining a mortgage, especially if their income is generated from the Czech Republic.
Non-EU resident
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To obtain a mortgage, there are no clear rules that the client must meet. The client is always judged individually depending on several factors. There is no rule that the client must have a permanent residency or a temporary stay in the Czech Republic, although this is an advantage. If you only have a long-term residency in the Czech Republic it is still possible to obtain a mortgage. However, the bank will only lend you up to a certain LTV.
As previously mentioned, there are several factors that will determine whether you are an adequate client. Among these factors are:
Country of origin
- Institutions often differentiate risky countries according to their internal tables. If you are a foreigner from a risky country, obtaining a mortgage will be more difficult for you compared to an EU citizen.
Origin of income
- This is a very important factor for getting a mortgage. Banks prefer the origin of income to be from the Czech Republic, whether in the form of dependent or independent activity. If your income is from abroad, you must prove that your level of income is sufficient.
Types of residency in the Czech Republic
- There are three different residencies that can be granted: permanent, long-term or temporary. In the case of an EU citizen, it is always better to apply for a temporary stay, which can be easily obtained at any time as a citizen of an EU country. In the case of a non-EU citizen, having a permanent residency in the Czech Republic is a big advantage.
Amount of revenue
- Depending on the amount of your income, the bank will decide if you are an adequate client for a mortgage.
Payoff amount
- It is a great advantage for banks if you are only applying for a part of the property versus the full value.
Repayment period
- The repayment period is often calculated depending on the previous factors.
Loan Value and Example of Financing
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The LTV (Loan to Value) is a very important factor when applying for a mortgage. It is the ratio of the mortgage loan versus the appraised value of the specific property. In general, banks in the Czech Republic lend up to a maximum of 85% LTV. It is possible that the bank can value a property at a lower price than it is, which results in more funding from your own pocket. Therefore, it is advised to have at least 20-30% of the real estate price of the property prepared.
A foreigner can still ask for a 90% LTV or higher, but then being a resident of the Czech Republic is mandatory. For non-residents from non-risky countries the maximum LTV is 85% for residential mortgages (buying a property for living) and 60% for investor’s mortgages (buying a property for investment).
As for interest rates, you can choose between an ARM (adjustable rate mortgage) or a FRM (fixed rate mortgage) which is usually for 1, 3, 5, 7, 8 or 10 years. The lowest rate is usually for a 3-year or 5-year fixation period. Both short and long fixation periods have their advantages and disadvantages and it depends on the client, what they prefer. While a shorter fixation period can assure you more flexibility, the longer one assures the same monthly payment. Furthermore, the majority of banks offer lower interest rates when the LTV is at or below 80%. As the LTV ratio increases, so does the total cost of the loan.
For example: A client with a LTV of 95% has an interest rate that is 1,10% higher than a client with an LTV of 80%.
The maximum age of the borrower can differ, but is usually 65–75 years, with the maturity date between (1–30 years).
Credibility of Clients
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To ensure credibility of their clients, banks will usually ask for the following documents:
Form with personal information
- A form with basic information about yourself, including citizenship, marital status, etc.
Property report
- As previously mentioned, the value of the property will be estimated by the bank. You might however want to check for any possible legal and technical risks. Therefore, obtaining an expert report of the property is highly recommended. The report should include the condition of the property as its estimated value.
Income declaration and tax declaration
- More likely than not, the bank will ask for these. As previously mentioned, the origin of your income is a decisive factor, as well as the amount and stability. The best-case scenario is if your income is from the Czech Republic and you are working as an employee. In that case, there are usually no complications. If your income is from abroad, banks will again prefer employees over self-employers, however factors like the amount of the income play a big role. Self-employers usually have a tougher process compared to employees. They must provide a tax declaration and prove that their income is high enough.
Below is a more detailed list of the specific documents:
1. ID documents (In the case of foreigners, the document is a passport.)
2. Income declaration
Employee:
- Copy of a payroll (past 6 months to 2 years) confirmed by the employer (max. 1-month old)
- Average income received by the employer
Self-employers:
- business license
- confirmation of payments to the Health Insurance Company and Social Security for the past 2 years
- tax return certified by the tax office for the past 2 years
3. Proof of expenditure
- contracts for other loans, mortgages, loans, leases, etc.
- documents relating to expenditure (maintenance, insurance, building savings)
4. Documents when purchasing the property
- Purchase agreement
- Extract from the Czech Cadastre of Real Estate (max. 1-month old)
- Real Estate Valuation (usually done by the bank)
- Property insurance contract
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