Having a down payment with a mortgage is a challenge for many borrowers and often raises many questions and doubts. Therefore, in this post I will answer some of the most frequently asked questions.
The regulations of the Polish Financial Supervision Authority effectively prevented banks from financing 100% of the value of the implemented objective. Therefore, for several years, wanting to buy a property or build it under a mortgage, it is necessary for the Borrower to participate in the form of own contribution.
What its own contribution?
It is the client’s share in the bank’s investment in real estate. The own contribution together with the amount of the mortgage loan borrowed from the bank constitutes 100% of the value of the realized purpose of the loan, i.e. the purchase of real estate or building a house.
According to Recommendation S introduced by the Polish Financial Supervision Authority, in order to obtain a mortgage, you must have an own contribution of 20% of the value of the purchased property. However, it should be noted here that having the minimum 20% own contribution is only theoretical, because there are still banks on the market that allow you to take out a mortgage with a own contribution of 10%.
Of course, taking a loan with a contribution of less than 20% is associated with the additional cost of insuring a low own contribution, which consists in increasing the margin until the loan balance reaches 80% of the investment value. However, there are also exceptions to this, because there are still a few banks on the market that, despite having a 10% own contribution, use low contribution insurance but do not charge the Borrower an additional fee in this respect.
What can be your own contribution?
The most common form of own contribution is cash, but in some situations it is possible for own contribution to take a different form.
Donation, loan from loved ones as own contribution
The missing own contribution to the mortgage can also be funds obtained from the immediate family. Both in the form of a loan from the family and in the form of a donation. It is worth remembering that in the case of a first-line donation, you do not pay tax to the Tax Office, you only need to report the fact of obtaining the donation.
The plot as own contribution
If you want to finance the construction of a house through a mortgage, the value of the plot will be treated as your own contribution. If you have accumulated materials for construction or did construction works, they will also be counted as own contribution by the bank.
Means accumulated on housing books as own contribution.
In the 1980s, housing books were a popular form of saving for housing. Holders of housing books, which were founded until October 23, 1990 are entitled to so-called guarantee premium if the funds in the booklet are intended for specific housing purposes.