What is own contribution and creditworthiness?

Buying your own apartment always involves considerable expenditure. Parents or other relatives often help. Sometimes you need to help with external financing in the form of a mortgage. To obtain such a loan, several requirements must be met. It should include have own credit contribution and have adequate creditworthiness.

Own contribution

Own contribution

It is possible that you already have part of the amount for the purchase of an apartment and the money you want to borrow from the bank are only a supplement. The amount you already have is called bank deposits. The higher your own contribution, the greater the chance that you will get a home loan. And not just because you want to borrow a smaller amount. Also because as a person who already has some savings you will be a more reliable and responsible person for the bank.

Some banks even require that a person taking a housing loan already have some minimum own contribution. On the other hand, some banks may give you a loan greater than the value of the flat they are buying. The total lack of own contribution greatly complicates the process of buying an apartment, because before the bank launches a loan, you must have money to pay a notary public and also for a down payment (paid with a preliminary contract). In total, it is usually a dozen or so percent of the price of the apartment. For this reason, it is worth having your own contribution at least in this amount. Buying an apartment on credit without having a down payment is possible, but more complicated.

Credit Ratios

Credit Ratios

The amount you need to borrow from the bank, expressed as a percentage (in relation to the value of the apartment) is the so-called LTV ratio. If the LTV is, for example, 70%, it means that in this part the flat is bought from a loan and the remaining 30% is, in this case, own contribution. If you have no own contribution at all, LTV is 100%. When a bank lends more than the price of an apartment (there are such banks in the country), LTV is greater than 100%. A surplus of over 100% can be used to cover the fees and costs associated with buying an apartment (tax on civil law transactions, notary fees, remuneration for real estate agencies, removal costs, etc.). Most often, LTV ranges from 50% to 80% (one third of all housing loans are included in this range).

Creditworthiness

Creditworthiness

To submit an application for a housing loan in a bank, you must already decide to buy the particular apartment you want to buy. This means that you must sign a preliminary contract with the owner of the apartment, in which you will commit to buying the apartment for some time. However, before you decide on this serious step, you should know if any bank will lend you the money you need. And if so, what maximum amount can you count on.

The amount of this amount is your so-called creditworthiness. If you go to a bank that grants housing loans, it will calculate your amount. And he will do it for free.

Before you go to the bank with a request to determine your creditworthiness, we will present you with a simple prescription for an independent, approximate calculation. All you need to do is specify your monthly income – yours or groups of people with whom you intend to apply for a loan. Multiply this amount by 50. This is the minimum value of your creditworthiness that the most careful bank will offer you. If you multiply your monthly income by 100, you will get the approximate maximum amount of creditworthiness that the most generous bank will offer you.

For example: with a monthly income of USD 3,000, the minimum creditworthiness is USD 150,000 and the maximum is USD 300,000. Another approximate method to calculate your creditworthiness is to check that your monthly loan installment does not exceed half of your monthly income. If it does not exceed, then you have a chance for a loan.

It is important that each bank uses slightly different criteria for calculating creditworthiness. It is therefore possible that in one bank you will have a creditworthiness of, for example, USD 300,000, in another 200,000 and yet another bank will not want to grant you a mortgage at all (then your creditworthiness will be zero in this bank). Creditworthiness depends not only on the level of your earnings, but also on how you get them. Banks have a better job rating in this respect.

When should borrowers must wait for help?

The Good Finance must once again adopt a law on the conversion of loans, by including or rejecting an absolute majority of the Senate’s amendments.

We still do not know what final shape it will take. the franc bill and whether it will come into force at all. Since the Senate has amended it, the Act on special rules for the restructuring of foreign currency housing loans due to a change in the exchange rate of foreign currency to the Polish currency will be returned to the Good Finance and must be adopted again.

However, if even the lower house of the Polish parliament manages to pass the bill before the election, the last word will belong to the president.

The final shape of the bill

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As announced by Sean Cole, regardless of the final shape of the bill will be signed by the president, Law and Justice will appeal to the president to read the judgment of the Court of Justice of the European Union in Luxembourg, before the signature, regarding the complaint of the Hungarian government regarding loan agreements denominated in Swiss francs.

The verdict in the above case is to be issued on September 17. If the Tribunal recognizes – as PiS expects – that a currency-denominated contract is not a “pure” loan agreement, but is a financial instrument, then in the light of the law in force in the entire EU, and thus also in Poland, such loan agreements will be invalid.

Good Finance believes that the entry into force of the provisions of the Franc Act, irrespective of the final shape it may take, would make it difficult for franc borrowers to benefit from the judgment of the Court in Luxembourg, provided that, of course, his judgment is in their mind.

Pure” loan agreement

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We are waiting for the results of the vote. The president will analyze the provisions of the act and then make a decision. For now, it is too early for specifics – Good Finance, director of the press office of the President of the Republic of Poland told the Polska Press Information Agency.

The Senate welcomed the resolution on submitting several amendments to the Act. The most important of them stipulates that the bank is to write off half of the amount of the housing loan liability after currency conversion (the act originally adopted by the Good Finance charges banks 9/10 of this amount).

Deadline for submitting the conversion request

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The second important change concerns the deadline for submitting the conversion request. Immediately after the bill is passed, they are to be submitted by persons whose credit exceeds the value of the property by at least 120 percent. In other cases (80-120 percent of the value) – one or two years after the provisions came into force.

Debt restructuring of mortgage lending: How to redeem your home loan

The rescheduling of a mortgage loan can hold considerable monthly savings potential, especially in times of low interest rates. With a remaining debt of $ 100,000, almost $ 84 can be saved per percentage point of cheaper interest. However, banks are allowed to charge a high prepayment penalty during the first 10 years, which relativizes the interest savings. In order for debt restructuring to work smoothly, the borrower should note a few points.

 

When is debt restructuring possible?

debt restructuring possible?

With the You can use the detailed building rate calculator to determine the cheapest current interest rate for your building loan. in the Follow-up financing calculator, you can enter the interest rate difference to your current loan to see the cost savings in euros. If this is greater than the prepayment penalty, rescheduling is worthwhile.

The borrower can reschedule his mortgage in three ways:

  • If there is a legitimate interest at any time – in this case, however, a prepayment penalty is due. A notice period of 3 months applies here.
  • After ten years, the borrower can reschedule his building loan with six months’ notice.
  • After the fixed interest period has expired: If the contractually agreed fixed interest period expires, the developer must repay the loan in full or take out follow-up financing and can also do so Agree Bank.

 

Rescheduling debt if interest is justified: Attention, prepayment penalty!

Rescheduling debt

In the first ten years, the building loan can only be terminated if the interest is justified before the end of the fixed interest period. This interest is given, for example, when the financed property is sold. In this case, the bank may levy a so-called prepayment penalty. The amount of this penalty fee is not regulated by law, but should correspond to the interest received by the bank due to the premature termination.

No prepayment penalty with a flexible interest rate

The prepayment penalty is payable on every loan with a fixed interest rate. There are very few exceptions to this. The situation is different with a loan with a flexible interest rate. A free cancellation is possible at any time with a three-month period.

 

Debt after ten years

The ten-year period begins when the loan is paid in full. After the ten-year period, the borrower can reschedule the loan without being fined. For this he uses the special right of termination according to §489 Paragraph 1 No. 2 BGB.

There is usually little to consider here. The financing can be made freely with any financial service provider. It should only be noted that follow-up financing is prepared early enough. The remaining debt is due when the loan contract expires. If the amount cannot be paid out of one’s own assets or cannot be paid through debt rescheduling, there is a risk of foreclosure.

The prolongation: follow-up financing without debt restructuring

If you decide to stay with the same provider, you are running a so-called Prolongation. This means nothing else than that the existing loan contract is extended, but conditions such as interest and repayment are agreed again. The lender must propose or exclude a prolongation no later than three months before the end of the fixed interest period. However, the prolongation agreement can also be concluded up to twelve months before the fixed interest period expires. This makes sense especially in times of rising interest rates.

Advantages of prolongation

The advantage of prolongation is the convenience for the borrower. Since the framework credit conditions remain the same, nothing has to be re-examined here. In addition, there are no costs due to a land register rewriting that would be necessary if the provider changed. However, since this is usually only a few hundred euros, this argument is of little importance.

Disadvantages of a prolongation

Some banks speculate on the convenience of their customers and make a worse offer than the competition. It is therefore worthwhile to obtain some comparison offers and to renegotiate with the financial service provider on this basis.

 

The forward loan for follow-up financing

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The Forward loan is a specialty in finance. It enables borrowers to secure an existing interest rate for the future. The forward loan can be agreed up to 60 months before the current follow-up financing. The borrower usually buys the interest rate security with a small interest premium of 0.01 to 0.06 percent per month.

The forward loan is made up of two periods. In the forward period, the borrower is exempt from all installment payments. At the end of the forward period, the construction loan is paid out and payment in installments begins. This means that a borrower can plan the debt rescheduling of his construction loan years in advance.

A forward loan is always worthwhile if an increase in interest rates can be expected. If, on the other hand, the construction interest falls contrary to the original assumption and the borrower does not want to accept the forward loan, he must again pay the bank a high non-acceptance fee.

A loan from a developer faster and cheaper, but not necessarily optimal

Developers usually work with a limited number of banks that offer faster loan granting, and often lower costs.

The developer can ensure the satisfaction of the buyer not only by offering the best apartment at the lowest possible price.

Many companies are also trying to cooperate with banks, which, with a small number of resources, can simplify credit procedures and reduce the cost of credit. It is worth remembering, however, that even the best offers presented by developers should be compared with others available on the market.

Simplified Procedures

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When applying for a loan in the developer’s sales office, you can count on simplified procedures and, as a result, shorter time to obtain financing.

However, this applies only to selected companies. – Thanks to the well-established business relations that connect us with selected developers, their clients can count on a simple, convenient and extremely beneficial way of financing selected investments – explains Agata Chrzanowska, Director of the Mortgage Department at Fine Bank.

This is because the documents regarding selected investments are in banks. On the one hand, the buyer does not have to complete them anymore, and moreover, bank analysts do not have to re-analyze them.

The down payment should not be lost

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In addition, when submitting a loan application through the developer, you can more often find provisions in the contract that allow you to recover the down payment or reservation fee when the bank refuses to finance. Even if there are no such entries, it will undoubtedly be easier for the developer to win them by looking for financing through it.

Lower cost of granting the loan

Lower cost of granting the loan

Another benefit for buyers highlighted by developers is the lower costs of granting a loan. It is especially about the lack of commissions and the lack of fees for the valuation of the property.

It should be emphasized that such promotions are very common on the market today, so it does not necessarily have to be an additional advantage of taking a loan in the developer’s sales office.

There are, however, interesting solutions dedicated by banks to specific developers. – In the case of our company, the PKO BP bank has created a unique grace period for capital and interest installments until the apartment is picked up – indicates Krzysztof Foder, Sales Manager of Bouygues Immobilier Polska.

Lower margins are rare

It seems that the most advantageous from the buyer’s point of view is a reduction in the credit margin. The commission is paid once, and the margin affects the interest rate on the loan throughout the entire debt settlement period. Good Finance, a representative of Breevast developer who cooperates with the Honest Bank, declares such benefits for buyers.

Similar solutions are most often available for buyers of housing lending in a bank, which also finances the developer. – In such cases, the margin reduction may reach 0.2 pp. relative to the standard offer – says Sean Cole, Home Broker advisor from Warsaw. It is also worth noting here that this is a kind of paradox because the bank lending to both the developer and the buyer is more exposed to risk.

How to Finish off with a loan?

When buying a property from a developer – the standard is usually bare walls and floors. However, a used apartment often needs refreshing or rearranging. Is it possible to finance this type of construction work? Does it require a loan exceeding the value of the property?

At the outset, it should be noted that finishing or renovating is one of the basic goals of a mortgage. Banks treat this as a housing purpose and apply the same price conditions.

How is it possible that the bank is ready to give a loan

How is it possible that the bank is ready to give a loan

For the entire price of the apartment and add to the finish? After all, only a few finances over 100% of the property value. The answer is simple. When determining the value of collateral, i.e. real estate, the bank adopts as its 100% future value after finishing or renovation.

Let’s assume that we are buying a flat from a developer for 400,000 USD and an additional 50,000 is needed. USD for its finishing. The target value of the apartment will be 450,000. USD, i.e. in total the loan will be granted for 100% of the value. Of course, the bank will only add the amount that it believes increases the value of the collateral.

Therefore, it may happen that if the bank measures the value of the apartment after finishing works at 430 thousand. USD, additional funds will be granted in the amount of only 30 thousand. The other 20 thousand we will have to layout ourselves.

It is quite easy to calculate it with a development flat because practically all the extra amount increases its value. In the secondary market, the estimates are more individual. 50,000 put into renovation here USD will not necessarily increase the value of the collateral by the same amount. In general, however, there is no major problem with obtaining a loan for such a purpose.

You need to prepare an estimate of work on a special bank print

You need to prepare an estimate of work on a special bank print

However, you must remember that the values ​​entered are as real as possible, as the bank may not accept the understated estimate. Too high an amount can also be questioned and the loan can be reduced to a level accepted by the lender.

This is understandable, as too low an amount for renovation will not further increase the value of the property, and the too luxurious finish does not give the bank a guarantee that the collateral is actually worth so much. In any case, the difference can, of course, be covered from its own resources.

Unfortunately, it will not be possible to finance the entire interior design with such a loan. The rule here is quite simple: you can credit what is permanently associated with the property and for what will increase the value of the apartment.

Therefore, the bank will lend for installations, plasters, partitions, painting, tiles, terracotta, floors, balustrades, etc.

The bank will not grant a mortgage for the purchase of furniture, TV and other moving parts.

Part of the equipment increases the value of the property, which is why in most banks you can get a loan for the kitchen, built-in kitchen appliances, built-in wardrobes, bathroom equipment such as a bath, shower, sink, toilet, and bidet.

The moment of launching the loan for the interior arrangement is specified in the loan agreement. However, you can specify general principles that banks apply.

If the apartment is purchased from a developer

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The finishing amount can be started after the technical acceptance of the apartment, before the notarial deed. When buying a used apartment, payment will be made after the notarial deed. However, if the loan for renovation concerns already owned real estate, you can apply for payment immediately after signing the loan agreement.

In the case of higher loan amounts, it can be paid out in tranches. To get the next tranche, please submit photos from the work already done to the bank. Some banks require an inspection of the property by an authorized person and it costs about USD 100. Today, invoices are rarely required to settle works.

Therefore, you should not be afraid to apply for a loan for finishing or renovation, even if the bank is financing the full amount of the apartment. In the eyes of the bank, property in the good technical condition is better than a building that has not been renovated for many years.

 

Women pay higher interest on loans

Anyone applying for a loan provides information on the monthly net income. Women who took out a loan through Viking Binary Lender in 2019 earned an average of $ 1,947 net – $ 637 (25 percent) less than male borrowers. Women work part-time more often and have interrupted employment histories more often. They also work more often in industries with low wages. Part of the difference in earnings is explained by such structural differences in the employment relationships of men and women.

 

Gender pay gap influences creditworthiness

creditworthiness

Those who earn less cannot take out such high loans: the loan amount for women is on average over 3,200 dollars than for men. And that’s not the only difference.

“For banks, disposable income is an important criterion for assessing creditworthiness,” says Oman Haier , managing director of Viking Binary Lender . “If you earn less, it is more difficult to get a loan approval and you have to pay higher interest rates more often. ”Three out of four men who apply for a loan through Viking Binary Lender receive a loan approval – for women it is just over two thirds (69 percent).

 

Expert tips for more favorable conditions

Expert tips for more favorable conditions

“Despite the unequal payment, women can also get very good credit terms,” ​​says Oman Haier . A comprehensive comparison of providers is particularly important. More than half of the women (54 percent) who compare loans through Viking Binary Lender receive a loan offer with an interest rate below 3.5 percent. Men secure this very low interest rate even more frequently (66 percent). However, according to Best Bank statistics, installment borrowers had to pay 5.91 percent interest on average in 2019. Viking Binary Lender customers pay less than one in seven (14 percent) loan interest at this level.

If you apply for a loan together with another person, you will also often get more favorable terms. “A second borrower with his own income improves the credit rating,” explains Oman Haier. “Because both borrowers are jointly responsible for the loan, the risk for the bank that the loan will not be repaid is reduced. This enables them to offer a cheaper interest rate. ”If you take out an installment loan for two, you pay an average of 21 percent less interest than borrowers who take out their loan on their own.

Not only spouses and life partners can take out a loan together. “Family members are just as possible as close friends,” says Oman Haier. For many women who want to get a loan, this is important information. Because they are divorced or separated more than twice as often as male borrowers.