Mortgage without collateral or a selected property. This means, if you need to prepare funds before hunting for a property, you haven’t chosen a specific property – you can still get a mortgage without selected property.
Collateral means that the bank will lend up to 80-90% of the potential property price (collateral, which is a percentage of the bank’s appraisal, usually equal to the purchase price). You contribute with your own resources amounting to 10-20%, or you can replace these own resources with another property.
For this type of mortgage, the potential mortgage amount is estimated against the sought property price, so the bank allows for up to 20% of the agreed mortgage amount to remain unused. In other words, we negotiate and set up the mortgage with a kind of reserve.
A message to property hunters: having an approved mortgage without a property is like having money in the bank account, like a cash = you’ll be on a real hunt. You can search for the suitable property without paying any interest or installments. Isn’t that great? 🙂
The advantage of this mortgage is that if you decide to buy a property later, it can then serve as collateral. During this time, typically 2 to 3 years, you can search for the right property without paying any interest or installments. Your mortgage is just ready and waiting for you.
This can be beneficial, especially when property prices are currently low, as you can borrow money and search for a property, putting you in a much better negotiating position with the seller.
It’s like holding cash in your regular account, believe me, this sounds like „heavenly music“ for the selling party, who often worry that they’ll sign a reservation and then the buyer’s mortgage won’t be approved.
The advantage of having an approved mortgage without a property is that the process of obtaining the mortgage is faster and simpler because you don’t have to provide any details about the property as collateral. This can be useful for those who need money quickly and don’t have the time or resources to gather details about the property.
With an approved mortgage in hand, you can speculate more on the property price; it’s a tool for acting swiftly.
Documents Required for Processing a Mortgage without choiced property
To obtain a mortgage, it is usually necessary to submit several important documents, which may be required by different banks and financial institutions. These documents include:
Proof of Identity – a valid identification document such as a national ID card or passport is typically required.
Income Confirmation on the Bank’s Form – the bank will want to verify your income to assess your ability to repay the mortgage. This could be in the form of bank statements, income confirmation from your employer, or tax returns. However, if your income goes to the bank where you maintain an account and they have access to this information, we won’t need to provide paper documentation, just a declaration in the mortgage application.
Employment Verification – the bank may want to confirm that you are employed and inquire about your current job tenure.
Tax Returns – if you are self-employed, the bank may request tax returns from the last few years to verify your income. Usually, for mortgage amounts within a certain range, one or a maximum of two recent tax returns are submitted.
Information on Other Current Obligations – the bank will want to know about your other financial obligations, such as other loans, credit cards, or leasing contracts.
Please note that the specific documents required are depending on the bank’s policies and the type of mortgage being applied for. It is essential to check with the respective bank or financial institution to ensure you have all the necessary paperwork in order to streamline the mortgage application process.
How does it work when interest rates are currently high? Will I ever have a lower interest rate?
When you arrange a mortgage without a property, you sign a fixed-rate agreement. Since interest rates are currently high, I would recommend a maximum 3-year fixed-rate agreement. After 3 years, conditions may change.
The good news is that by arranging a mortgage without a property, you sign a loan agreement = you have funds ready for buying a property. However, with the signature/approval of the mortgage, a 3-year fixed-rate period begins = you trim down the current unfavorable interest rate, and you don\’t pay anything yet.
Psychological-practical context of accepting a mortgage with a higher interest rate
Currently, people are reaching out to me who had mortgages arranged when interest rates were around 2%. Sometimes, these clients were on the edge of creditworthiness back then but decided to go for it. Due to the new fixed-rate conditions offered by banks as their fixed-rate periods end, they find themselves in a situation where their installment increases by 2-3 times, which can be fatal for their family budget.
The psychological-practical context is metaphorically meant from the perspective that you find yourself in the opposite situation. With the current high interest rate, you can comfortably afford the mortgage and evaluate that you can handle the repayment. In the context of the following years and changes in fixed-rate periods, your installment may eventually drop to half of what it is now. You won’t experience the reverse shock that people are facing now – people who were only familiar with a 1-2% interest rate and considered the mortgage payment based solely on that, leading them to take out the mortgage. You could be among the clients who will arrange a mortgage during a period of high interest rates, but later, when the rates drop, you may opt for, say, 10-year fixed-rate periods with low interest.
It’s good to look at the mortgage in a broader context, as it usually take 30 years. Even though we all think that we will pay off the mortgage with extra payments earlier, it doesn’t always work out that way, as various factors come into play along life’s journey.
Within the context of a 30-year mortgage term, banks will change their conditions multiple times. Therefore, I emphasize again – considering the opportunity to buy a property now may not be illogical (high interest rates but lower property prices).
This kind of loan is not for each expats, less banks provide this kind of product. Ask me, if this suitable for you. I need to know:
kind of stay in CZ (temporary, longterm, permanent)
if czech wife or husband (not required, but sometimes usefull)
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