Can I get pre-approved mortgage in the Czech republic?
Another common question we get from our clients is whether you can get a mortgage pre-approved by a bank and how easy it is to get one. In this article we explain what does it mean to be pre-approved and how one can understand it.
If you are not familiar yet with the process of getting a mortgage, the standard setup is that you apply for a mortgage after you find the right property. The right steps we suggest are:
realize your intended investment plan - for example "I want to purchase a property for up to 8 MCZK with 10% down payment"
consult with your bank or even better, with independent mortgage advisor, about likelihood of approval
go property hunting
once you find a flat - finalize the application and get the mortgage approved
sign mortgage and purchase contract to complete the process (if you are wondering when you should sign the Reservation contract, we cover that in our previous blogpost)
So what about pre-approved mortgage? Surely it is good to get, right?
Well of course it is, but there are few tiers how it can be understood. Let us explain the various options, which we have broken down to 4 levels.
First tier - Assessment of your profile by a professional mortgage advisor or by your bank:
This is the 2nd step we mentioned in the text above. By this we mean that if you share with us your:
ideal purchase scenario and amount of own funds invested
your personal profile (citizenship, residency status, length of stay in the Czech republic...)
income situation and current debts / liabilities
then we are able to estimate 98% likelihood of approval. This is mainly because we specialize working only with expats and we can offer 8 years of experience and hundreds of approved mortgages so we know exactly what type of case fits into which bank. The 2% we leave for things we cannot anticipate, like sudden change of bank's methodology or any possible misunderstanding during the process - however it almost never happens.
Long story short - this type of pre-approval is sufficient for 90% of all clients.
Second tier - Checking your debt registry
In this step we have to narrow down the options to the most suitable bank and sign an application for a mortgage to be checked by the bank. At this point you do not have to have the property found - the bank would simply take your personal data and make sure they will not find any potential skeleton in the closet from past loan products as debt history is carried for many years.
Rest assured - by signing the application you are not anyhow committed to stay with the bank or to any fees. You can cancel the application the next day or leave it open until it expires.
This step we recommend to anyone who might have any doubts about their previous repayment history or if you would like to save a few days in the further process as we would gather most of the documents already by this point.
To sum up - this is useful if we want to proceed as fast as possible once you find a property as the more work we do in the beginning, the less things are left to be one later.
Third tier - Direct feedback from the bank's risk or AML department
In some cases, the client's profile just does not fit into any boxes from the bank's methodology. Maybe you just switched from full time employment to self-employment but you are still invoicing the same company. Or maybe there are some stricter conditions for your country of origin (we know it can look unfair, the bank's point of view is that they also need to follow international AML and other regulations so they apply extra measures).
These are quite rare situations but here we would sign the application like in Tier 2 and then ask the banker to consult with the responsible department to get as much feedback as possible.
Fourth tier - Official mortgage promise
This is as far as you can get in a pre-approval - getting mortgage for up to 1-3 years in advance. We would submit the complete mortgage file, let the bank approve it and eventually sign a mortgage contract without a property. There are 2 great things about this:
you know for sure what amount you are approved for and you can count on the money promised by the Mortgage contract
you actually save the interest rate now and even if you find a property in 6 months, the original rate is still valid for you - which is very useful if the rates are expected to get higher (like now 07/2021); not so much when it is expected to drop in the following months...
But there are few downsides as well:
This product is offered only by 2-3 banks at the moment
There is typically approval fee of about 5.000 CZK
If you will not use the mortgage in the end or not in the certain percentage of the approved amount, there might be contractual penalties for you
You are limited to that bank only - so for example if the valuation will not match the numbers we need - you would either have to pass on the property or face the exit penalty.
What can we recommend to everyone? At least get to Tier 1 before you look for properties to have some feedback on your situation and consider if maybe Tier 2-4 is interesting for you.
We know the mortgage process is a complicated one so don't hesitate to get in touch for free mortgage advisory. You can fill inquiry form on our website or simply email firstname.lastname@example.org or call +420 777 877 849.
With best regards,