Obtaining a mortgage in Slovakia

While applying for a mortgage, each bank follows its own methodology and is also limited by the rules and regulations of the National Bank of Slovakia (NBS). As for mortgage loans, banks are interested in three main areas, namely:

- the client's creditworthiness,
- real estate,
- purpose of the loan

Main criteria:

1. Age

The minimum age for the applicant is in most cases 18 years.
There is no maximum age, but a person must have time to pay off the loan before the age of 65, sometimes an exception can be made - up to 70 years.

2. Foreigner's income
Type of income - usually banks distinguish between basic income and secondary, additional income, which should not be the only type of income.

With the onset of the pandemic, banks started to be more meticulous at the client's income. If the client works in the sectors most affected by the crisis (gastronomy, culture, tourism, etc.). he may face serious problems in obtaining a loan, some banks may refuse to provide a mortgage.

Minimum work experience in one place should be at least 6 months, in exceptional cases - three months (when starting work after a decree) When doing business, banks most often need at least one-year history, they often require information about two closed full reporting periods.

3. Type of employment
The ideal applicant for a bank is an employee who is employed indefinitely.

4. Education
Banks give preference to university-educated clients because they expect them to find new jobs quickly enough in case of job loss. The income of a client with a university degree is higher than that of a client without a university degree.

5. Family status
The bank checks if a person is single, married or divorced. In most cases, the spouses have joint property, so both automatically enter into a credit relationship and participate in the repayment of the loan. In case of problems with payment, the bank will ask from the spouse not half of the unpaid amount, but the whole.

6. Liabilities
Each bank is interested as well in the existing as the past loan commitments of the client with each application for a loan product.

The bank checks the client's history in the credit register, which checks not only the current state of clients but also the history of 5 years. Thus, each bank has information about what loans the client had and how timely he paid them.

The DTI parameter (Debt to Income) - says that the total loan load should not exceed 8 times the client's annual income. For example, if a customer earns € 1,000 net and already pays out a consumer loan with an outstanding amount (principal amount) of € 5,000, the maximum amount the bank can lend to him is € 91,000. (€ 1,000 x 12 x 9 - € 5,000 = € 91,000).

DSTI (Debt Service to Income) is a parameter that states that each loan applicant must have (after deducting the installment plan and the cost of living) another 40% of the financial pillow. The size of payments on new loans cannot exceed 60% of the calculated amount.

For a customer who earns € 1000 net and already pays off the loan with a monthly installment of € 122, it is € 1000 - € 215 (subsistence minimum) - € 122 (existing installment) = € 664. The maximum repayment amount for a new loan is 60% of the amount calculated in this way, i.e. j. 398 euros.

You can calculate the possible mortgage amount on the website https://optivista.sk/hypoteka/ yourself.

7. Property

A type
A mortgage loan can be provided for various types of real estate: land, apartment, house, non-residential premises.

Property value
The value of the property affects the maximum loan amount that the bank can provide to the client, as well as the amount of interest.

Location
The location in which the property is located affects the maximum loan amount. There are banks that focus on the "urban-type of the client", and if the property is located in a district or regional city, they are ready to lend larger amounts of money than in a village.

8. Purpose of the mortgage loan.

- Acquisition of real estate

- Construction

- Refinancing mortgage

- Consolidation (a combination of a mortgage and other loans, respectively)

-Without a goal

In some banks, non-earmarked loans have a shorter maturity of up to 20 years, and non-earmarked loans have a higher interest rate.

What is the difference between the main parameters of obtaining a mortgage loan for foreigners?

Banks provide mortgages for foreigners, but the terms are tougher than for locals and each bank sets them differently. In practice, a foreigner often does not apply for a mortgage in his bank but approves it in another. Therefore, choosing the right bank is key.

In addition to the above, for mortgage approval foreigner's application is influenced, in particular, by the following parameters:

Foreigner's country of origin

Each bank checks the country of origin and current residence of the applicant. An EU citizen with permanent residence in Slovakia has the greatest chances of getting a mortgage from a Slovak bank. All other categories are assessed by banks individually. It is almost impossible for citizens of countries with a high level of risk to obtain a mortgage in Slovakia. These include countries such as Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao People's Democratic Republic, Syria, Uganda, Vanuatu, Yemen, Iran, and the Democratic People's Republic of Korea (DPRK).

The length of permanent residence in the Slovak Republic also affects in some banks whether the mortgage applicant must provide an extract from the credit register of the country of origin.

Country from which the foreigner receives income

Whether the applicant receives income from Slovakia or from abroad is an important parameter that the bank also checks. Some banks are strict and do not accept income from countries outside the euro area.

Mortgage applicant income type

The ideal mortgage applicant is an employee of a Slovak company that operates in a risk-free sector and achieves good economic results, while at the same time the applicant works on a full-time basis.

Entrepreneurs are generally in a worse position than employees when applying for a mortgage, even if they do business in the form of a Slovak trade or s.r.o. The worst combination when applying for a mortgage is income from a business in the form of a foreign legal entity.

Mortgage co-applicant

After the approval of the mortgage, the co-applicant automatically acts as a co-borrower under the loan agreement. If the principal borrower does not repay the loan, he is obligated to repay the loan in full. Hence, the co-applicant (or guarantor) poses less risk to the bank of non-payment of the borrowed money and increases the bank's willingness to approve the requested loan. In practice, a bank may reject a mortgage application from a single foreigner working in the Slovak Republic, but a foreigner married to an employed wife can get a mortgage approved without any problems.

LTV, assignment and cross-selling

In addition to the aforementioned restrictions, some banks perceive and check differently when applying for mortgages with foreigners, the most common restriction is the amount of LTV. In such applications, banks quite often set the ceiling for the maximum loan amount already at 70, respectively 80% of the property value (instead of the standard 90%). Some banks also limit the purpose of the mortgage to purchase or refinancing only.

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