In the aftermath of the coronavirus pandemic, the fallout for the real estate industry in the Czech Republic is being widely debated. When it comes to property prices and trends in buying homes, many experts are suggesting that prices will remain stable and that we’ll see a movement away from cities and toward the socially-distanced suburbs.
Tomáš Jedlička, financial advisor and Expats.cz mortgage specialist says that currently, the Czech National Bank has eased some mortgage conditions, allowing banks to offer 90% loans again and removing the condition that the total loan should not exceed nine times the net yearly income of the applicant. He says that rates are also down, making this a good time for potential homeowners to act.
Qualifying for a mortgage as a foreigner
For foreigners living in the Czech Republic, securing a mortgage will be more complicated than it is for the average Czech citizen. Nevertheless, in most cases, it is not an impossible task. Keep in mind that it will help immensely if you have a Czech speaker or mortgage specialist to assist you throughout the process.
Banks and mortgage providers use a variety of criteria to determine a person’s mortgage eligibility. To complicate matters, each bank has its own policy and specifications regarding a foreigner’s eligibility. This can also work in a person’s favor: If, for example, you are rejected for a mortgage by one bank, you may still be approved by another.
In general, the basic criteria for a foreigner applying for a mortgage is that they have either have temporary (přechodný pobyt), long-term (dlouhodobý pobyt), or permanent residency (trvalý pobyt).
Most banks will accept applications from foreigners with permanent residency, while some accept applications from foreigners who only have temporary or long-term residency.
However, it is possible to apply even without a residency permit (for example, some EU citizens working in the Czech Republic don’t have a permit as it is not required and can still be approved for a mortgage). Typically, you should have income from the Czech Republic, but also foreign income is accepted (though it must be incomed gained as an employee, not via entrepreneurship).
You’ll also need to have an address (either own or rent property in the Czech Republic) and most banks require a Czech ID (rodne cislo), but some accepting applications even without it.
Foreigners in the Czech Republic without official residency status can apply for a mortgage through an s.r.o., a Czech limited liability company.
Country of origin and risk categories
In addition to a person’s residency status, banks will also take into consideration a person’s citizenship. Banks have established the following risk categories:
Lowest risk: the Czech Republic and Slovakia (including foreigners with Czech citizenship)
Low risk: EU and European Economic Area (EEA) countries
Medium risk: Third countries (People from relatively low-risk countries outside of the EU and EEA such as USA, Canada, Russia, China, Australia)
High risk: primarily countries in Africa, the Middle East, and Asia (Oman, Saudi Arabia, Vietnam, Sri Lanka)
For all mortgages – whether for a foreigner or Czech citizen – financial standing is key. Monthly payment of installments should not exceed 50% of the net salary. The total value of loans should not exceed 9 times yearly net salary.
Banks will look at whether you have a stable job and income and how much you can put towards a down payment. A 10% down payment is a must, better if you have 20% (lower interest rates, higher chances to be approved).
Freelancers may also be considered for a mortgage provided they can prove a steady stream of income, only from the Czech Republic not from abroad.
Essential documents needed
Of course, there is paperwork that goes along with applying for a mortgage. In addition to proving the amount, source, and reliability of your income, foreigners will also need to provide certain personal information such as citizenship and marital status.
Finally, you will need to provide information about the property in question so that the bank can estimate its value: you will need an appraisal of the property and the purchasing contract as well. The entire process takes 1-3 months, which is dependent on the bank’s processing time and paperwork requirements.
You can apply even without property in mind – the bank will assess your credit score, tell you if you are eligible and the maximum amount of loan. Then the client has three months to find a property – if not, the application will expire.
Where to go for additional help
A mortgage broker is an intermediary who works with multiple lenders and is paid a referral fee by the lenders. Mortgage brokers are a one-stop-shop, offering complete real-estate financing and legal guidance to both foreign individuals or property investors. Working with them is a popular option among borrowers because many banks offer discounted rates to mortgage brokers who bring them business.
Mortgage agents can also help you secure mortgage approval when you wouldn’t normally get it from a bank. And for those who don’t speak Czech, having one on your side is a no-brainer.
One caveat, when it comes to mortgage brokers, however: don’t let them talk you into additional services that don’t make financial sense to you (on the other hand, brokers can help you acquire the building insurance that is required by the bank).