Have you reached the point where you are starting to think about taking out a mortgage, either on your own or with someone else? But what does arranging a mortgage actually involve? There is quite a lot to it, and the whole process takes more than a month. We will shortly outline how long mortgage approval takes, and much more.
What is a mortgage?
A mortgage is a long-term loan secured by a lien on a property. The lien usually applies to the property you are taking out the mortgage for, but this does not have to be the case. The property may or may not be in the Czech Republic. If the property is in the Czech Republic, it is always registered in the Land Register (katastr nemovitostí).
What types of mortgage are there?
The basic division we can use is into:
- purpose-bound mortgages
- non-purpose (American) mortgage
Another division we can use is:
- mortgage with drawdown in instalments
- refinancing mortgage for past expenses
- mortgage without a property
- relay mortgage
- 2-in-1 mortgage
What is a reverse mortgage? If you are interested in this type of mortgage, read more.
Purpose-bound mortgage
Suitable for buying a property, including a cooperative flat. You can also use this mortgage to settle co-ownership shares or the joint property of spouses after a divorce.
Non-purpose (American) mortgage
This mortgage can be used for anything, but you must secure it with a property. The property must not be encumbered by any lien or anything else, for example an easement (věcné břemeno).
Mortgage with drawdown in instalments
This mortgage is suitable if you are planning to renovate the property you are buying yourself. You agree the drawdown terms individually with the bank, and the money is paid out in parts (instalments).
Refinancing mortgage for past expenses
This type is suitable if you have already invested in a property and need the money back. The repayment terms are similar to those of a standard mortgage. You can apply for money up to 3 years back.
Mortgage without a property
It is ideal for buying a property at auction, or if you have not yet chosen a property. You can complete the purchase within 3 years of approval.
Relay mortgage
It is ideal if you want to help your child buy a property. You take out the mortgage on the property while your child is not yet able to make the repayments. Once they have a sufficient income of their own, you pass the baton of repayment on to them. These terms must be agreed with the bank in advance, which is why we have used the name “relay mortgage”.
2-in-1 mortgage
This is a combination of a purpose-bound part, used to buy the property, and a non-purpose part, which is suitable, for example, for renovation. You can also use the non-purpose part for anything else, such as landscaping the garden or building a garage.
What do you need for mortgage approval?
We will list the individual documents, together with a short description where something needs further explanation. To arrange a mortgage, you will need:
- Identity card and a second proof of identity (passport, driving licence)
- Proof of income (for a self-employed person (osoba samostatně výdělečně činná, OSVČ), a tax return)
- Mortgage application (each bank will have its own form)
- Reservation agreement (for the purchase of the property), or a preliminary agreement (smlouva o smlouvě budoucí)
- Property valuation (usually prepared by the bank you are applying to)
- Mortgage agreement
- Drawdown request
- Proof of property insurance (required by law before drawdown for every property on which a mortgage is provided)
- Pledge agreement (issued by your bank and signed by the person you are buying the property from)
- Application for registration of the lien (attach the pledge agreement from the previous step)
How long does the whole mortgage approval process take?
It depends on how quickly and accurately you provide the documents. Of course, it also depends on whether you are arranging the mortgage yourself or whether a mortgage adviser you hire is helping you. The whole process is very individual and depends on the specific case. In general, from signing the reservation agreement to receiving the keys to the flat can take up to 6 months. Arranging the mortgage itself can take around 3 to 4 months, from submitting the application, through the valuation and mortgage approval, to drawing the money into a lawyer’s escrow account.
The approval itself, once the bank has given you the green light that all documents have been correctly submitted and that you qualify for the mortgage, takes 3 to 4 weeks. The money is then drawn into escrow, and this step may be conditional on your own money already being in escrow, that is, the part you pay from your own funds, known as the down payment.
