In today’s article, we’ll look at common obstacles that can make it difficult for us to find our dream home.
Clients often come to me with the following problems. My job is to find a bank where we have a realistic chance of getting a loan on the best possible terms. Let’s see what can happen:
I’d like a mortgage, but…
…I have a hit on my credit records.
…I don’t have enough money of my own.
…I’m self-employed and I’m optimizing my taxes.
…the bank told me I couldn’t afford it on my income.
…I already have one mortgage.
…I have several other loans, and I don’t think I could handle the payments.
…I went through bankruptcy.
I have a hit on my credit records.
In this case, it is necessary to find out what kind of scrape it is. If you’re slightly late on one loan payment, don’t despair. Banks are prepared for this and if they see that everything else is in order, they will approve your loan. If there have been multiple late payments or you are behind on one payment on multiple loans, the situation is more difficult. The worst option is a historically defaulted loan. Even in these cases, however, it is possible to “negotiate” with some banks for approval for an exemption. The odds are about 50/50. If you would like your case to be professionally assessed, I will be happy to help and you can contact me. Contact details can be found at the end of this article.
I don’t have enough money of my own.
Nothing to be ashamed of. The Czech National Bank has tightened the lending rules to such an extent that I encounter this problem in every other loan case. There are several ways to deal with this:
- Ideal case (80/20%): the bank will lend me 80% of the value of the property and I will give the remaining 20% from my own funds. Then don’t hesitate, the loan will probably be approved.
- Almost ideal case (90/10%): the bank will lend me 90% of the value of the property and I will give the remaining 10% of my own money. Then you get a few tenths of a percent worse interest rate, but the loan is still viable on good terms.
- I don’t have a dime. I need the whole 100%: This can be addressed in the following ways:
- I’m pledging another property to the bank. It can be a second flat or house or a cottage or land. Your parents or relatives can also help you and guarantee your property. This second property can be taken out of the loan over time when you reach the required loan-to-value ratio. So, for example, at the end of the first fixing period after 5 years of the loan or even earlier.
- I’ll finance the remaining 10-20% from another loan. According to the new law, this is no longer possible. However, there are paths to take. We would rather discuss more in a private message or phone call or preferably over coffee.
I’m self-employed and optimizing my taxes.
This is certainly not an unusual case. You won’t find a businessman who likes to pay taxes. Banks know this too, and some are more friendly to sole traders than others. And many times even if you have a “zero” tax bill. There are, of course, certain limits. If you email me, I’d be happy to discuss this with you and see if it’s realistic for you to get a mortgage.
The bank told me I couldn’t afford it on my income.
The fact that one bank told you that you can’t get a loan doesn’t have to apply at the other bank. Each bank has its own methodology and calculation methods. In general, only two rules apply. They are rules called DTI and DTSI. The DTSI says that your repayments on all loans cannot be more than 45% of your household (or all loan applicants’) income. The DTI says that the total current amount of your loans must not exceed 9 times your total annual household income.
If you bump somewhere, there are 2 ways to deal with it:
- Reduce the amount of your repayments. Either by paying off your current liabilities or by consolidating them, for example, with a reduction in the total repayment.
- Increase your deductible income. This doesn’t necessarily mean you have to earn more. You simply need to find a bank that will recognize your income at the highest ratio. So what do different banks recognise as income:
- income from employment
- income from business
- rental income / future rental income
- income from the agreement
- income from own company
- income from capital assets
- parental allowance
- maintenance (alimony)
- diets of professional drivers
- retirement pensions
- disability pension
- old-age pension
- widow’s pension
- orphan’s pension
- foster carer’s remuneration
- housing allowance or soldiers’ stabilisation allowance
- …
None of the banks recognize all of the above and in full, and it is sometimes difficult to find one where the math works out in your favor. But I’ll be happy to help you with that.
I already have one mortgage.
Sometimes people think that if they already have one mortgage, they can’t get another one. The opposite is true. It is only necessary to achieve this with your income. We talked about this in the previous paragraph.
I have several other loans and I probably couldn’t handle the repayment.
In this day and age, when advertisements for cheap loans are literally screaming at us from all different media, this can happen. The solution may be consolidation, or the merging of all liabilities into one, so that the resulting repayment is significantly lower. Then again, you only need to achieve the mortgage with your income (see the fourth paragraph of this article). But always give preference to common sense and calculate well whether you can sustain it all in the long term.
I went through insolvency.
Here we are approaching the edge of the unreal. Generally, you can’t get a mortgage or other loan until 5 years after the insolvency has been discharged. However, I have negotiated exemptions for clients more than once for cases at least 2 years after insolvency. But it has to have a head and a tail. We can talk more in person or via messenger.
