Mortgage – Frequently Asked Questions and Answers, Part 3.

Read also the first and second parts of this series.

1. In part one, you’ll learn how to sell a mortgaged property, how a renovation mortgage works, and whether and why you need property insurance to get a mortgage.
2. Then, in the second part, you’ll learn about non-bank mortgage options and why they do or don’t pay off. Next, you’ll find a description of how a mortgage works for a foreclosed property you acquired at auction. You will also find out if it is possible to take out a mortgage on a commercial property, and what the possible alternatives are. Finally, you can then look at how early repayment of a mortgage works.

Can I buy a house on hire purchase without a mortgage?

Not everyone can get a mortgage due to its strict conditions and many people do not want to guarantee their property. At the same time, however, it is a problem for many to save enough money to buy a house. So the question is – is it possible to buy a house on installments without a mortgage? And we answer – yes, you can.

The first option is to take out a loan for the house other than a mortgage loan, for which you will not guarantee your property. A popular option is, for example, a consumer loan, which has no given purpose and for which you do not pledge the property. It is usually repaid in monthly instalments and does not have a fixed term as a mortgage does. However, its disadvantage is the low amount that the bank will lend you (usually a million to a million and a half crowns). Another disadvantage is the limited repayment period, which usually does not exceed 10 years.

Another option is to take advantage of the house hire purchase services offered by some estate agents or building firms. You either buy an older house or have a new one built to your liking and then pay off the house regularly in the form of rent. Thanks to this, you can buy a house with practically zero cash and without fulfilling the conditions set by the CNB. The clear advantage of this method is that almost everyone can afford to own a house, whether they do not have a minimum initial deposit or have a record in the debtors’ register. But the problem is that these services are often non-transparent and contain many hidden fees. In the end, therefore, you can often end up losing your dream home.

What are the terms of a mortgage on a plot of land?

First of all, it is important to mention that you can usually only get a mortgage on a plot of land that is intended for development. You can find out whether you can actually build a house on the land you have chosen by consulting the land registry or the local zoning plan. The land must also not be encumbered by third-party rights, foreclosures or other legal defects that would make it impossible to mortgage.

It is also a condition of obtaining a mortgage for the land that it must have a driveway. If there is no public road leading to the property, but it is necessary to cross private land, then you will usually need to provide an easement to allow passage.

Things to remember when choosing a plot

There are several factors you should consider before you buy land to build a house:

• Proximity to jobs, schools, health care and amenities: you should consider driving distances to essential services. You should also check the character, safety and amenities of the neighbourhood. Consider factors such as noise, crime, and nearby parks or recreational areas.
• Zoning: Confirm that the land is actually zoned for single-family home construction and identify specific building restrictions, such as height or character limitations.
• Mains: Check that the land is connected to water, sewer, electricity, gas and internet. If not, determine the cost and feasibility of connecting to these services.
• Easements: check with the Land Registry for any easements that may affect your use of the land.

• Soil quality and stability: test the soil to see if it is suitable for construction. This is because soil conditions can significantly affect the cost of construction and the type of foundation required.
• Slope and drainage: Consider the slope of the land to avoid problems with poor drainage.
• Protected Areas and Restrictions: Find out if any environmental restrictions or regulations apply to the site.
• Future developments: research nearby development plans or trends that may affect the resale value of the property over time. For example, it may be that a busy road will eventually develop behind your garden.

Can I take out a mortgage on a condominium?

Many people are tempted by the prospect of a condominium. The main reason is that these flats are much cheaper than privately owned flats. But what about a mortgage?

Unfortunately, a conventional mortgage for a cooperative apartment is not possible. You can only get a mortgage with a mortgage on the property, and a cooperative apartment cannot be used as collateral. This is because you do not legally own the cooperative flat. When you buy a co-operative flat, you are not buying a flat, but a share in a co-operative, so the flat itself does not officially belong to you.

You can take out a mortgage on a condominium if you own another property that you could mortgage instead of the condominium. However, this property should be worth the purchase price of the condo so that you can get a high enough mortgage. Another option is to take out another type of loan for the condominium, such as the consumer loan mentioned earlier. However, this has a limited repayment period and a low maximum amount.

A big advantage for you is if the housing association plans to transfer the flats into personal ownership, because then it is possible to take out a mortgage directly on the cooperative flat. Specifically, this will be a so-called pre-mortgage loan. However, in order to obtain this, you will need to provide a certificate from the housing association stating that the flat you are buying will be transferred to private ownership for the next two years. Once the transfer has taken place, the pre-mortgage loan will turn into a conventional mortgage and the flat will be pledged to the bank.

Is it possible to take out a mortgage without pledging the property?

You can only take out a conventional mortgage without mortgaging the property for a limited period of time in the form of a remortgage or a forward mortgage. After a certain period of time, however, you need to convert it into a conventional mortgage. We have already mentioned both types of mortgage in the second part of this series in the chapter on mortgage on foreclosed property. However, to remind you, here is a summary:

Apre-mortgage loan is not secured by the property. It is usually valid for one year, and once it expires, it needs to be refinanced into a conventional mortgage secured by the property. A pre-mortgage loan also usually has a maximum value (usually up to CZK 5 million). You can apply for a pre-mortgage loan after the property has been auctioned.

Aforward mortgage, or a mortgage without a property , is where you arrange this type of loan with the bank before you have a clear idea of what kind of property you will buy with it. You usually have up to three years to do this, and once you have chosen a property, this forward mortgage becomes a conventional mortgage. Beware though, should you not get the property by the specified time, you risk heavy fines.

How to mortgage another property?

If for some reason you do not want to mortgage the property you are taking out a mortgage on, or perhaps the value of the property is not enough, there is the option to mortgage it with another property. You can guarantee a house and a flat, but they must be used for living purposes (so if they are purely for business purposes, for example, you cannot guarantee them). This is because properties used for business purposes are not as valuable to banks as properties used for residential purposes. You will also need the property owner’s consent to pledge.

A holiday home, such as a cottage or a chalet, can alsobe stopped. However, the property must be suitable for year-round occupation. This means it must have a description number, a driveway, water, electricity and other necessities for year-round occupancy. Another surety option is a land surety. However, it must be a building plot.

To conclude this series, we would like to remind you that decisions regarding mortgages and financing your property are indeed complex and require consideration of various factors. Each person and their situation is unique, so it is important to consult with professionals and ensure you take the right legal steps. In the world of finance and real estate, nothing is completely clear-cut, which is why it pays to ask for help.

Read also the first and second parts of this series.

1. In part one, you’ll learn how to sell a mortgaged property, how a renovation mortgage works, and whether and why you need property insurance to get a mortgage.
2. Then, in the second part, you’ll learn about non-bank mortgage options and why they do or don’t pay off. Next, you’ll find a description of how a mortgage works for a foreclosed property you acquired at auction. You will also find out if it is possible to take out a mortgage on a commercial property, and what the possible alternatives are. Finally, you can then look at how early repayment of a mortgage works.