Czech Mortgage Guide
Want to buy a house in the Czech Republic? Here's a quick introduction to the various options available
Getting a mortgage as a foreigner in the Czech Republic is possible, although the procedure can be time consuming. However, it can be demanding for Czechs too. The process recently has become much easier for EU citizens.
One of the first things you have to consider is your status as a foreigner in the Czech Republic. The process of obtaining a mortgage is much easier for EU citizens now that the Czech Republic is a member of the EU. Before 1 May 2004, if you were an EU citizen and you wanted to buy property you had to have 10-year permanent residence (trvalý pobyt), or you could purchase it through a company. Now, you can buy property whether you have temporary residence (přechodný pobyt) or permanent residence, although some banks require permanent residence status. Non-EU citizens without permanent residence will still have to consider buying property through a company, although a fast-track solution is to buy an “off-the-shelf“ company from a firm which specialises in such transactions. The process costs around CZK 40,000, but it means that you can avoid the usually time-consuming process of setting up a company. From the very outset you should think about consulting a mortgage adviser who can help you negotiate your way around the mortgage maze. S/he will be able to advise you about the various benefits and disadvantages of each lender’s offer, specific details that should be considered and all the legal procedures that have to be followed. The mortgage broker is also a local who will know the market and so s/he can help you find the property that is best for you and at the best price. Banks such as Česká spořitelna offer special expat packages, including mortgage services. This may also be an option, although an independent mortgage adviser will be able to give you an overall, impartial view of the market.
How mortgages are offered
First of all, you should work out what you are looking for and then you should approach a lender about arranging finance. The lender (most commonly a bank), will not provide finance until you have found a property. Banks are the most common lenders in the Czech Republic, and it pays to look around to find the best deal. Obviously having a mortgage advisor to help you is extremely advantageous. Whether the bank will offer you a mortgage will depend on your income, and the lender will ask to see evidence of your income, such as pay slips, and income from any other source. The way the bank calculates how large a loan you can afford is complicated, but as a rule, the monthly payment with interest should take up no more than 50% of your net monthly income, which can be as an employee or from freelance work, although in the latter case you will have to prove that you have a stable income. Remember that banks in some cases will offer a loan based on their own evaluation of the property, rather than the purchase price, especially for older properties. You will need to put down a deposit, which is normally 10%-20% of the property price. Banks sometimes offer a 100% loan, although this may be 100% of the valued price based on their own evaluation. Lenders offer various maturities for mortgages, such as 5 years or 30 years (the maximum), with 65 years being the age limit at which banks will lend money. Mortgages can be offered at a fix rate for a certain period, or variable rates. There is a trade off between higher interest rates offered with fixed rates, or lower interest rates with variable payment periods. Some banks, but not all, require life assurance to be set up for them to grant the mortgage. Beware of the banks that try to sell you life assurance since they may not be offering the most competitive rates. You can always set up your life assurance independently and if necessary assign the policy to the bank should they require it.
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