One of the most important elements that we must realize before taking a loan, apart from creditworthiness, is the own contribution. This element reduces the interest rate, and thus also reduces the future loan installment.
What is the minimum own contribution to the loan for building a house
The rules for granting mortgage loans change from year to year. Unfortunately, these changes are for the worse. The rules are tightened, which may mean that many people will have to give up buying their own apartment or incur additional costs. As it turns out, in 2013, in some banks, we were able to take out a loan to build a house, with virtually no savings, i.e. a so-called loan without own contribution. Since 2014, this is impossible and worse, the changes from year to year are more and more severe. In 2014, you had to have money to cover at least 5% of the cost of buying / building a house, from year to year this amount increased by another 5 percent and today the own contribution must already be 20 percent of the value of the purchased property.
And all this thanks to the recommendation S adopted by the Polish Financial Supervision Authority. She decided that the entire property could not be financed with a loan and that by the end of 2014 the LtV ratio may not exceed 95%. In 2015, the limit was 90%, in 2016 – 85 or 90% with additional repayment security, and from 2017 – 80 or 90%.
What does the new Recommendation S change?
The new Recommendation S states that banks:
• they can grant loans only in the currency in which the given client earns income, loans can be granted for a maximum of 35 years, with their repayment period not exceeding 25 years;
• when assessing creditworthiness, the loan should take a 30-year repayment period
• when granting a loan, they may allow a situation where the DtI ratio exceeds 40% or 50% at the time when the client earns more or less than the average salary in a given region, but this must be a conscious acceptance of increased risk.
What can be your own contribution
Often, when deciding to take out a mortgage, we wonder what must be the own contribution. As it turns out, it does not have to be only money accumulated on the bank account. Anyone who wants to take a loan to build a house, complete construction, renovate or buy a house or apartment, may also indicate as their own contribution:
• market value of the plot on which it will build a house,
• incurred costs of developing a house construction project and connections, site preparation for the construction and the value of works performed and purchased building materials,
• the cost of buying a building in the shell or building for renovation;
• funds from the liquidation of the housing book,
• co-financing under the government’s Youth for Youth program;
• value of real estate shown for sale before completion of construction, eg an apartment.