The time when almost everyone could get a mortgage in therequired amount and at an extra low interest rate is probably over for a few years. On the other hand, high rates are likely to be around for a while and the current period of low demand for property is conducive to a good purchase of quality housing at a possibly better price tag. So whether we want to take advantage of the current situation to buy a new home, a plot of land to build on or even an investment apartment, it is more important than ever to prepare for it.
So, let’s talk about how to prepare for amortgage in 2023, especially in terms of getting the maximum loan amount possible. Into this consideration then enters first of all:
- 2022 tax return
- income from employment
- rental income
- income from own Ltd.
- credit expenditure
- other factors affecting max. the amount of the loan
Tax return for 2022
In the case of self-employed persons, the tax return is the main basis for proving income for the mortgage. So if I plan to apply for a mortgage in 2023, it is very smart to start already now to address how this tax will look, both in terms of income and costs.
How to influence revenue is up to each entrepreneur. But let’s say that if I know that I need the income until 2022, then I can invoice my services forward by agreement…
In terms of costs, the most advantageous solution to obtaining a mortgage seems to be the use of a40% / 60% / 80% expenditure lump sum. This is a model in which we can recognize more income for a mortgage on a tax return than is actually reported there. The reason is simple, self-employed persons using flat-rate expenses have lower actual expenses in practice. And banks know this fact. I wrote about the various solutions to achieve the maximum loan amount with the help of the methodological exception in mylast article. It also plays a crucial role here, as activity we carry out and report in the tax return (CZ-NACE code).
On the other hand, a flat tax will be a way for most entrepreneurs to close several doors. Although banking methodologies for calculating the income of self-employed persons under the flat-rate tax regime are already in place, the absence of a tax return means that the approvers are not so keen on methodological exceptions, which are often needed by self-employed persons. Without the tax man, there simply isn’t much to “cook from”. However, if you have already entered the flat-rate tax regime, I recommend that you make all your income cashless. In practice, bank statements will be the main document to prove actual income.
It is also appropriate for approval of methodological exceptions if we are able to show billing in the current calendar year that is the same or ideally higher than the previous year on average.
Income from employment
The employment relationship is the best one for banks to grasp and is fully deductible for a mortgage. However, there is also a minimal possibility to recognise a higher income. Banks most often calculate the average net monthly income for the last 12 months , including bonuses. So we can simply filter the last 12 paychecks in online banking, take an arithmetic average of them, and that will be approximately the eligible income for the mortgage.
One way to increase such income is by increasing the wage bill. I mean. if you have been promoted or your employer has simply increased your merit pay, then it is possible to apply for a methodological exception so that the bank does not follow the average for the last year, but the new salary assessment. The condition is that the new income has already landed in your account at least once.
Beware of DPP or “money on the side“. The reasons for the existence of HPP and DPP with one employer are obvious. Unfortunately, the banks look at the DPP as an employment relationship that can end overnight. Such income is therefore not deductible for a mortgage. For example, if you receive a salary on HPP + CZK 8,500 on DPP and you are planning to take out a mortgage, it would be a good idea to consider combining these incomes into one before applying for a mortgage, even at the cost of higher levies.
Existing rental incomethat is already being taxed is eligible for the mortgage. We achieve the highest deductible income if we use the following to tax this income 30% flat-rate expenses. In the case of using real costs and specially depreciation, it is important to remember that a large part of the gross income can still be recognised for the mortgage, but the profit after deduction of costs must not be negative.
Rental income that has not yet been taxed can be offset if you provide the rental agreement and the bank statements where the rent goes. It is definitely not advisable to collect rent in cash.
In certain cases and with some limitations, it is also possible to include future rental income, either on the property being purchased or on the property from which I am moving into the new home.
In all cases, the amount of countable income is approximately 60-70% of the gross rent excluding utilities.
Last but not least, you should always take into account that the maximum possible mortgage amount is significantly influenced by the existence of other credit obligations. So if we are planning a mortgage, for example, it is important to think carefully about whether we should actually buy now. car on credit or operating lease.
As part of the mortgage approval process, it is also possible to agree with the bank to pay off a specific liability before taking out the mortgage itself. So there is no need to cancel credit cards and top up loans right now, just plan ahead if necessary.
Other factors affecting max. the amount of the loan
The bank can still have a say in calculating how much it will lend us:
- interest rate movements – A lower rate means a lower repayment and therefore a higher loan limit and vice versa. For example, a 0.5% per annum change in the interest rate will mean a difference of approximately CZK 500,000.
- maternity / parental leave – If it is in the plan, it should also be taken into account for the mortgage application. Approval for a loan with existing income is possible no later than just before the start of sick leave.
- LTV – Although it is possible to finance up to 90% of the mortgaged value of the property, if we come up with methodological exceptions, the lower LTV is a good argument. So if, for example, a property is at stake to secure a loan, this can have a big impact on the bank’s approval of concessions.
- wedding – This is sometimes forgotten, but spouses must always apply jointly unless they have a narrowed SJM. A wedding can also mean advantage for mortgage. For example, the reduced CNB limits (DSTI 50%, DTI 9.5, LTV 90%) apply to applicants up to and including 36 years of age. However, in the case of married couples, it is sufficient if only one of the couple meets the age requirement.
Experienced mortgage advisor
I’m going to throw a little soup in here 🙂
It is becoming more and more difficult to obtain a mortgage for the required amount today, and more and more often it cannot be done without the approval of several methodological exceptions at the same time. You need not only well Unarguingbut also document. And that takes experience, the right choice of bank and also forward planning.
I often do a credit analysis for my clients for the current and following year. This service will be most appreciated by entrepreneurs who will get an idea of the maximum mortgage amount they can afford. They can then largely influence their options with smart planning and thus obtain a mortgage in 2023 with a high degree of certainty.
If you are interested in such a credit analysis, simply send me a brief message in the form below and I will get back to you with details.
And maybe we’ll even meet over good coffee.