A very fun topic to cover! We will try to go over all the possible questions you might have, while being an expat. However, mortgages are always quite unique & tailor made for everyone, so many exceptions can apply!
So many expats think of buying property in the Czech Republic, then go to their bank and get told that they can’t get a mortgage because they’re an expat! That might be true for that bank, but there are many banks that will allow it and you just need to find which one
Can I get a mortgage?
First question that many expats ask. If we start with the basics, the banks will need to know about you and if you’re a risky person or not!
Are you EU or non-EU?
Both can get a mortgage; however, it will mostly depend on point 2
What visa/residency permit you hold?
Obviously, the best option is to have permanent residency (trvaly pobyt) > temporary residency (prechodny pobyt) > work visa (dlouhodobe pobyt). A common myth is that if you do not have a permanent residency, you will pay more for being a foreigner. This is wrong.
The only difference will be how many banks will be available for you to choose from. Sometimes, the one bank that has the current lowest rate on the market will not give a mortgage to foreigners without the permanent residency permit, but other banks will & they just happen to have a higher rate at that given time.
So, to make it easy, if you are EU or non-EU and you have NO visa/residency permit, then you can’t get a mortgage. If you have any type of visa/residency permit, there should be at least 1 bank that can accept you.
What is your source of income?
This is not about how much you make, but how you are paid. The easiest and vastly accepted form is employed with indefinite contract. The banks love those! However, you can still get a mortgage if you are employed with definite contract (i.e.: it has an ending date), BUT you either must have had it renewed at least once in the past OR have a promise from the employer that it will be renewed again.
Those of us who are freelancer (ICO, OSVC), it may be a bit more complicated. The bank will request a tax return document of at least 1 year and sometimes 2 years. For example, if I want to buy in 2021, I need my 2020 tax returns and possibly my 2019 returns. If you started working as a freelancer in 2020 (let’s say mid 2020), then your tax return will be accepted, but it might not be enough in terms of income that you made. Now the tricky part about tax return is the fact that as a freelancer you can claim expenses to pay less taxes! While this can be a smart thing to do (who likes to pay taxes, eh?), the bank will only consider the income you declare minus your “expenses”. For example, if I make 1M CZK per year and I declare my taxes using the 60/40 rule, in the eyes of the bank I make only 400k CZK. This could be enough for my mortgage, but this will depend on the amount I want.
If you own a business (s.r.o.) it will complicate things quite a bit, since you are technically not making income, but your company is.
I live in Czech Republic, but my income is made and taxed out of CR.
If you are employed outside of the Czech Republic, it is possible. However, you should consider that the bank will probably view your income with only 85% of it’s value.
If you are a freelancer and your income is taxed outside of Czech Republic, this becomes very complex and can be accepted, but by using an exception.
How much can I get? What is my maximum?
The second most popular question. So maybe you now believe you are eligible to get a mortgage, but if you will start looking, you need to know what’s your budget. The first thing you will need to consider is the LTV. It stands for Loan To Value. It is not possible anymore to get a 100% mortgage in CR, therefore you MUST have some cash yourself to put up front. The minimum required by law is 10%, BUT you will get a lower interest rate if you have 20%!
For example, I want to buy a flat for 5M CZK. I will need at least 10% = 500,000 CZK OR 20% = 1M (for best interest rate).
So your first step to determine your budget will be to gather all of your reserves together.
Now, if you have the 10% or 20%, the next step is to calculate your full debt potential.
The Czech Central Bank recently abolished a condition for maximum mortgage amounts. However, it is still widely used as a rule of thumb in banks. So, it is not an official calculation but will give you a good idea of what you can do.
Formula: (Net yearly income X 9) – current debt(if any)
Example, I make 37 443 net per month and have no debts à 37 443 * 12 months * 9 = 4 043 844 CZK
Then, on top of that number I can add my reserve. So, if I have 400k in cash, then my total purchase potential is 4 443 844 CZK. However, if I have a personal loan of ~200k, then I must deduct it from this amount.
The next rule, that is still in place from the CNB is the % of repayment versus your monthly net income.
The current rule is that your monthly repayments to the bank can’t be more than 50% of your net monthly income.
Example, I get a mortgage and I need to repay 23 500 per month. That means that I need to be making 47 000 net per month at the minimum to be approved!
However, the first rule often correlates with the second rule, therefore they go hand in hand.
We now basically covered the first part of the mortgage, which is the individual financing. Can you as a person get a mortgage.
What can I buy?
The process is not over! The bank will be placing a guarantee on your property, so they need to make sure that you’re not buying junk! You can use a mortgage to buy land + build or buy a new developer property or a classic 2nd hand property. It can be a house or a flat. There are a few details that need to be solved depending on which option you prefer; however, they are all possible to do.
In ALL cases, the bank will proceed with an estimation of the property. If it is already built, they will send an estimator to evaluate the price. This has a cost, that you need to pay. Usually, if a flat: ~1500 CZK and if a house: ~4000 CZK (these prices vary by bank and can be sometimes removed). If it is a plan to build, you will need to provide the construction plans to the bank.
Usually, this process is a formality and there are not many issues. But there is a scenario that can arise!
Example, you found a flat you really like and want to buy. You checked everything and you have the income, the visa, AND the 20% in cash! The flat is being sold for 6M, but after the estimator passes, they claim that it’s actually worth 5,800,000 CZK. In this case, the bank will give you 80% of 5,800,000… SO you need that extra 200k from your own pocket!
This situation can happen, but it is not too common. You may get the estimation for a lesser value, but usually the gap is not too significant.
Warning! When looking for new property be careful about these things:
1- Association/Cooperative ownership (bytové družstvo): This means that the flat is owned by many people and if you buy it, you will not own the flat, but you will own a share in the association. In this case, banks can’t place a pledge on your flat, and therefore will not give a loan for it. These flats are usually cheaper for this reason since not many people can buy it. However, it is still possible to buy a flat like this by using a financial institution that will give a loan without a guarantee (try stavebni sporeni).
2- Atelier (office space): This means that the flat was originally built for office/work purpose. It may have been renovated and looks like it’s for living, but on the official technical documents of the flat, it is for working. The banks will not give a mortgage for living purposes for this type of property. You can still buy it through a business loan, but you will have very strict conditions for this, and it will be more expensive.
In conclusion, there are many more information that is applicable and many exceptions that can be requested. A financial consultant will help you with the whole process and negotiate on your behalf with the banks. They will always try to make it work for you and get you the best deal on the market that is possible. The great news about this, is that they work for free for you! They get paid by commission from the banks themselves, but this does not increase your cost and the commissions they receive are the same if they choose bank A, B or C.
