A foreigner
from a non-EU country can buy real estate in the Czech Republic only
after having registered a company in the Czech Republic in his/her
name.
Our Czech partners serve as a credit broker for several Czech banks,
which enables our foreign clients to easily obtain mortgages in the
Czech Republic.
The bank granting the mortgage naturally examines if the company
requesting the mortgage has a source of steady income. Such sources
can be income from salaries, dividends from securities, and sources
of income received by such a company or its owners outside the Czech
Republic. The bank granting the mortgage only requires that the mortgagee
transfer funds necessary to pay the mortgage to his/her Czech account
at the bank.
Due to our Czech partners’ close working relationships
with Czech banks; they have had success helping to secure mortgages for
our clients even when a mortgage applicant has been unable to demonstrate
a source of steady income.
A mortgage applicant must provide several documents with his mortgage
application. These include the registration documents of his company – the
constituent contract, an extract from the Czech Trading Court about
the registration of the company, a copy of the passports of all co-founders
of the company, Czech tax return declarations for recent years (if
available), an assessment of the value of the real estate, and other
documents.
In granting a mortgage, a Czech Republic bank stipulates the conditions
under which funds should be transferred to the seller’s account.
You also need to provide the bank with proof of insurance on the
real estate you have purchased, for a sum not less than the purchase
price of the real estate, a record of any “rights of restriction",
on the property, an accounting of the shares in the property held
by each founder of the registered company, the terms of the funds
transfer by the bank, etc.
Under Czech law, purchasing real estate in the Czech Republic with
a mortgage makes you the property owner while the bank that granted
the loan has only “rights of restriction” to the real
estate.
After obtaining a mortgage in the Czech Republic, the “rights
of restriction” limit the shares of each founder of the company
holds in the property to the percentage that they possess in the
authorized capital of the company. This means that until the mortgage
has been repaid in full no co-founder of the company has the right
to sell any or all of his/her shares in the authorized capital of
the company. This is a form of insurance for the bank in case the
mortgagee turns out to be insolvent. In addition, banks require a
40 percent down payment on the cost of the property, which you provide
from your own means.
On the basis of the limited power of attorney signed by you, our
employees will collect the full package of documents necessary for
the bank to make a decision on your mortgage, including information
gathered by us on a valuation of the real estate.
Granting a mortgage in the Czech Republic occurs
in two stages.
In the first stage, the bank makes a decision on granting the mortgage;
in the second, it transfers the necessary funds to the settlement
account of the seller.
There is one condition in granting a mortgage
for the purchase of an apartment or a house that is under construction: until the bank
transfers the entire sum of money to the seller, you cannot repay
the mortgage, and you pay fees to the bank at an annual rate of 1
percent for its pledge to extend credit to you. Interest payments
commence when the bank transfers the total sum to the seller’s
account according to the mortgage contract.
Conditions for obtaining a mortgage
- Banks offer mortgages for a registered in the Czech Republic
Company for periods of mortgage up to 15 years, to finance up to
70 percent of the property’s value.
- Repayment of the mortgage is done in monthly equal payments.
- The mortgage rate depends on so-called “term of fixing.” “Term
of fixing” is a time period in which you have the opportunity
to change certain provisions of the sales contract, for example,
to pay off all or part of the principal of the loan without incurring
any interest charges and without any penalties. You may also
change the length of the “term of fixing” as long as
you do this within the limits of the original “term of fixing.”
- For example, assume that you have received a mortgage of $100,000.
Also, assume that your sales contract specifies a three-year fixing
term. In addition, the contract must specify a period during which
you may notify the bank of your desire to repay part of the principal
of the loan (for example, you wish to pay off $25,000 immediately)
and/or about changing the term of fixing (for example, you may
wish to extend it for one year if within that year you expect to
have an opportunity to completely pay off the loan). The $25,000
will be accepted by bank without your any obligation for you to
pay interest charges on this amount and without any penalty. The
interest payments would then be recalculated for the remaining
portion o the mortgage.
- Term of fixing can be set at one, three, five, and seven years.
The shorter the term of fixing, the lower the mortgage rate. Currently:
- For a one year term of fixing, the annual interest rate is 3.5-3.8
percent;
- For a three year term of fixing, the annual interest rate is
4.2-4.6 percent;
- For a five year term of fixing, the annual interest rate is 5.5-6.5
percent.
- Length of time need to obtain a mortgage
- On average, the entire process of applying for and obtaining
a mortgage for a new company that is registered as a foreigner’s
property in the Czech Republic takes up to six weeks.
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