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.

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