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.