Before you can apply for a mortgage, you must have funds for your own contribution. However, if your savings are not enough to cover it, you still have a chance to get financing. We suggest what solutions the bank can accept in such a situation.
The requirement to make an own contribution is primarily associated with mortgage loans. It may also apply to other banking products, such as car and investment loans. Regardless of which of these instruments we are talking about, own contribution is simply the client’s participation in the investment financed with the help of the bank.
Most often it takes the form of a monetary form, although it may also be material goods or securities accepted by the bank. In practice, it can also be replaced by other solutions – in the case of mortgages, especially those taken with a view to building a house, there are really a lot of them.
What is the minimum own contribution for the mortgage?
The search for ways to deal with own contribution intensified a few years ago. At that time, the Polish Financial Supervision Authority imposed on banks the obligation to demand its submission. Initially, it had to be equivalent to a minimum of 10% of the value of the property being bought or built.
Later it was increased to 15%, and now, after the KNF modification of S Recommendation in 2017, it is already 20%. It should be emphasized that the values provided apply to USD mortgage loans. In the case of financing provided in foreign currency, in some banks this threshold is even higher – it reaches even 30%.
A minimum own contribution of 20% means that if you want to buy a flat, for example for 300,000 You can count on borrowing a maximum of USD 240,000. USD – you have to accumulate the remaining 60,000 yourself. If you intend to renovate the apartment at the same time, the related costs will increase the amount on which the required contribution will be calculated.
If they would raise the cost of the entire investment to 350 thousand. USD, then the bank would require you to have a minimum capital commitment of 70,000 Golden. You can also take out a mortgage with only 10% own contribution and reach for the bank’s offer with low own contribution insurance. What other ways do we suggest?
Own contribution – effective ways to increase it
Low own contribution insurance
Due to recent changes in the mortgage act, the bank can agree to a lower, 10% own contribution. However, this obliges you to take out additional insurance. If you decide to use this option, then for a flat worth 300 thousand. you will get up to USD 270 thousand Golden. What will the “insurance” of the missing amount consist in?
The fee for insuring a low own contribution can be charged in two ways: in advance for the entire period of several years, or by temporarily raising the bank’s margin. Most lenders use the latter solution, adding to the interest rate around 0.2-0.3 percentage points, which translates into an increase in the monthly installment (usually by several dozen USD). The increased installment must be paid until the outstanding amount falls below the required 80% of the property value.
Donation from the family
Financial support from your loved ones is one of the few sources of additional cash that allows you to make up for the missing own contribution. Regardless of whether you are talking about funds transferred by your family or a person unrelated to you, report them to the Tax Office on SD-Z2 form. If the financial donation comes from a donor from the so-called And for the tax group, i.e. for example parents, grandparents, spouse, stepfather or stepmother, regardless of the amount you receive, you will not pay the donation tax (but you must report it to the tax office!).
In the case of the second tax group (downstream family members), only up to USD 7,276 is taxed, while for the third tax group (unrelated and unrelated) the limit is even lower and amounts to USD 4,902. As for the tax rate itself, depending on the amount of the donation and the tax group, which includes the donor, it ranges from 3 to 20%! For example, if a friend gives you 15,000 USD, the amount above USD 4,902, i.e. USD 10,098, will be taxed at a rate of 12%, which will translate into the need to pay USD 1221.76 tax. When the donor is a person outside the immediate family, the tax costs can be quite large.
The fact of donating money does not require a notarial deed, but should be confirmed in writing. Make sure the donation agreement contains such elements as:
- date and place of the contract;
- names and addresses of both parties to the contract;
- the amount of the donation and the donor’s declaration that the funds are his property;
- declaration of donation and its acceptance;
- indication of the deadline for transferring funds;
- signatures of the parties.
Savings accumulated under the third retirement pillar
By choosing this option, in a sense, you will “unfreeze” the capital accumulated on your account, and at the same time you will not lose potential benefits offered by the third pillar. In this case, the bank will only protect itself against the funds you have paid, and this will not involve either their payment or the loss of your pension security.
The loan agreement should indicate the specific value of the pledge – if the collateral is used, the surplus will remain at your disposal. When determining the value of the pledge, the bank will probably take into account the fact that in the event of early withdrawal of funds from the pension program or termination of the contract, the reserve will be reduced by a commission and / or receivable to the Social Insurance Fund. Therefore, the amount of collateral established will be slightly higher than the value of the missing part of own contribution.