The purchase of real estate is one of the most important financial decisions we make in our lives. Good Finance Financial Advisor, tells you how to prepare for it solidly and define your expectations and options so that the choice of real estate and possible credit is the best. Remember that banks’ offers are very different and choosing the best loan is not always the simplest.
If you plan to finance the purchase of real estate with a bank loan, then creditworthiness is the most important. If, according to the bank, we are unable to pay back the loan, we will not even receive the proverbial zloty, even if we provide various collateral. The bank must be sure that it can afford to pay back the loan and in this respect it verifies our income, liabilities as well as the current credit history.
In simplest terms, we can say that creditworthiness is the possibility of paying off the installment of a future credit obligation. Taking into account our income and liabilities, the bank estimates the loan installments we will be able to pay and on this basis sets the maximum loan amount that we can receive.
In this calculation, in addition to the installments of loans and credits repaid so far, costs of maintaining our family members, housing expenses or costs of maintaining a car are also included. The creditworthiness may also differ from the place of residence, because the bank assumes other costs related to current maintenance in large cities, and other in smaller centers.
In a situation where our creditworthiness is too low
We can increase it in several ways. One of them may be to organize your finances and pay off or close several liabilities. We often have several credit cards in our wallets, which we don’t use in practice, and which reduce our credit availability. We must be aware that each bank treats credit cards or personal account limits as a potential liability, which causes a decrease in creditworthiness. Therefore, it is worth making a kind of “examination of conscience” and eliminating unnecessary banking products.
Another way to increase creditworthiness is to join other borrowers. When calculating, the bank will take into account the income of these people, which will allow for a higher loan amount. However, we should remember that the charges of additional borrowers and their credit history will also be checked, and in most cases the costs of maintaining an additional household will also be calculated.
In addition, if older people join the loan, e.g. parents, it may shorten the loan period. Banks usually determine the repayment period taking into account the age of the oldest borrower, and therefore, assuming that the loan must be repaid before the age of 70, obtaining financing for e.g. 30 years will be impossible.
It is also worth looking at creditworthiness
From the perspective of the borrower, not just the bank. Let’s think about what monthly installments we are able to pay. We are not suggesting only the bank’s proposals, but let’s calculate our expenses, our income and based on it let’s assess what installment will be acceptable for us. The calculations must also take into account the potential increase in loan installments. Currently, interest rates in Poland are at historically low levels and in the next few years we have to reckon with their increase. This will translate into an increase in installments and in our calculations we must also assume the need to pay a higher installment. Let’s evaluate our financial standing thoroughly and only then start looking for a property that we can afford.
When purchasing a property for a loan, in addition to the creditworthiness mentioned above, we must also have our own contribution. Since 2014, requirements in this area have been successively increased. Initially, 5 percent of the property value was required, and in 2016, according to the regulations of the Polish Financial Supervision Authority, the borrower’s own contribution is already 15 percent.
Ultimately, 20 percent of the property’s value will be required in 2017. However, both this year and in the following years, a “gate” was left enabling to obtain a loan with only a 10% own contribution. This is possible only if part of the missing amount is insured. This is the so-called low own contribution insurance, known in banks for several years, also in the period when loans were granted at 100 or 110 percent. Of course, we must be prepared that in several institutions we will have to make 15 percent of the required contribution, and sometimes even more, but in 7 banks we will get a loan of 90 percent of the value of the property.