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The procedure for buying a property with a mortgage

Nowadays, property prices are so high that most people do not have the opportunity to buy a property using only their own savings. Therefore, more and more people are resorting to financing their homes with a mortgage. But how does the whole mortgage loan process work and do you even have a chance of getting a mortgage? These questions can be answered in our article.

7 minutes of reading

Chapters of the article

Clarify your financial situation

First and foremost, you need to be clear about your financial options and set a maximum budget for buying a property. Three factors will play a big role in this area:

1. The obligation to pay at least 10% or 20%

If you are taking out a mortgage and you are under 36, you are obliged to pay at least 10% of the purchase price of the property. If you are over 36, then your minimum deposit must be 20%. So you have to take into account that if you plan to take out a mortgage on a property worth 5 million, you must have already saved or otherwise provided 500,000 (or a million) in advance, as you will have to pay these upfront.

2. Your income and age

Whether you can get a mortgage at all depends on your income and how old you are. Two indicators set by the Czech National Bank play a role here:

  1. The first is the DTI indicator, which is the ratio of the amount of total debt of the loan applicant to the amount of his net annual income. This level is currently set at 9.5 times annual income for people under 36 who are buying their own home and 8.5 times for other applicants.
  2. The second indicator is the DSTI, which is the percentage of the total amount of all monthly repayments to the net monthly income of the loan applicant. There is no mandatory upper limit for this indicator, but the CNB recommends 40% as the upper limit.

Tip: There are plenty of calculators available online to help you work out how much mortgage you can get, or contact our solicitors for the latest mortgage rules.

3. Your financial history

The mortgage you get also depends on how you repay your loans and bills (e.g. electricity and gas). If you have a history of ‘black marks’ on your repayments this will also be reflected in your mortgage.

Finding a property

If you have already worked out how big a mortgage you can get and have saved the necessary 10% or 20% of the property price, it’s time to look for your dream property. Once you’ve got your eye on something, it pays to find out all the information you need about the property.

When buying an apartment, this includes its technical and legal condition. You can find out the legal status at the Land Registry. It is also worth measuring the size of the apartment to see if it actually matches the information provided by the seller. Then find out whether there are any outstanding utility bills, for example, or foreclosures by the current owner.

Tip: Before buying a property, one of the essential steps is to preview the land registry. Read our article to find out everything you need to know about the Land Registry extract.

If you are planning to buy a house or land, the situation becomes a bit more complicated for you. In addition to the above information, you should also find out whether the house or land has any easements, which you can find out by looking at the Land Registry again. In addition to the land registry, you should not miss the zoning plan. This determines what you can and cannot do with the land (and whether you can build a house on it at all). Also find out whether the house or land is in a conservation area, flood zone or undermined.

Tip: We have already written about what you should find out about the property in our earlier articles Buying a flat – practical tips you often don’t find in the contract and What to check before buying a property.

Booking contract

Once you are sure of your purchase, you will enter into a reservation contract with the seller. In this you agree to actually buy the property and pay the reservation fee. At the same time, however, you are assured that the seller will not offer the property to anyone else (even if there is a better offer).

Tip: Read the story of our client who entered into a reservation contract for an apartment. The real estate agency promised him something that it could not deliver.

The reservation fee is usually 3-5% of the purchase price of the property and is already part of the purchase price, so it is deducted from the total purchase price. In the event that the purchase does not go through, it usually serves as a penalty for breach of contract. So really think carefully when signing a reservation contract.

Are you about to take out a mortgage?

Then our services will come in handy. We will provide you with a complete contractual and legal service related to the purchase of real estate. We can do it within 48 hours, flawlessly and professionally.

Mortgage application

You can now apply for a mortgage. To apply, you will probably need to provide evidence of your income, a bank valuation of the property and a bank and non-bank register check.

Once the bank approves your mortgage, it’s time to sign the loan agreement. In addition to this, you also need to take out property insurance. Without property insurance, the bank will not give you a mortgage. In return, the bank will provide you with a mortgage agreement and a proposal for entry into the Land Registry, which you will give to the seller of the property to sign. Together with this, a purchase contract will also be concluded between you and the seller. You will then submit the application for entry of the mortgage into the Land Registry.

Tip: Read what should be included in a property purchase contract.

Arranging a mortgage and transferring ownership

The next step is the transfer of the purchase price. At this point, it is worth using an escrow service. An escrow is a special account set up by a lawyer, notary or bank. The purchase price is deposited in this account during the procedure for changing the ownership right at the Land Registry. Thanks to the escrow, you can be sure that nothing will happen to your money in the event that the ownership is not transferred. However, the seller is equally protected by the fact that he is sure that he will actually receive the money after the transfer.

Tip: Applying for entry into the Land Registry is not easy. We can help you with the drafting so that everything is right the first time and you don’t miss important deadlines or lose money.

You will therefore pay your minimum share of the purchase price of the property into escrow. You will then send the bank the necessary documents to disburse the loan – usually the purchase contract, mortgage agreement, escrow agreement, proof of insurance on the property, proof of filing the mortgage agreement with the land registry, and a receipt for the minimum 10% or 20% payment into escrow. The bank will then send the remaining purchase price of the property to escrow.

Tip: It pays to contact our attorneys when dealing with escrow. We will provide you with a complete contractual and legal service related to the purchase or sale of the property. We can handle it within 48 hours, flawlessly and professionally.

This is followed by the entry of the purchase contract into the Land Registry. After the processing of this application (which usually takes 20-30 days), the property is handed over and a handover protocol is drawn up. This should include the meter readings, the number of keys to the property and the equipment that is part of the property.

Previously, you would still have to pay property tax of 4% of the purchase price. However, this is abolished from 2020.

Today’s times are characterized by ever-increasing real estate prices, which is forcing more and more people to use mortgage loans. It is therefore important to understand how the whole process of buying a property on a mortgage works, what to look out for and how to avoid potential problems.

But buying a property on a mortgage is not just a financial decision, it is also an investment in the future and for many a dream come true. It’s a step towards owning a roof over your head and a place to call home. Although the journey to it can be fraught with complications, effort and careful planning, the end result rewards us with a sense of stability and comfort.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

Education
  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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