Mortgage loan for purchasing of real estate in Poland. Step by step process. Part 2

 In this article, we will discuss a credit history and find out if your assets affect a mortgage. We will try to understand how the maximum mortgage loan amount from the bank is calculated and on what indicators it depends.

 Credit history

Credit history assessment is one of the most important steps in verifying a customer applying for credit. A positive credit history assessment can ultimately influence a bank's decision to subsidize a customer. Banks check the credit history of potential customers using the Credit Information Bureau (pol. BIK). When applying for a credit product, the bank sends a credit history request to BIK. The BIK contains all the information about the credits included, as well as any debts. A good credit history can increase your chances of getting a credit. Therefore, it is worth starting collecting positive information in the database as soon as possible. The Credit Information Bureau has adapted to the changing realities in the credit market and is already working with colleagues in Ukraine, resulting in increased information about the credit history of Ukrainians. This is important because a lack of credit history makes it difficult to get a mortgage. However, if someone has already taken out a credit and repaid it in Ukraine, it will still increase his chances of obtaining a credit in Poland.

Here are some practical tips on how to improve a credit history in the eyes of banks:

1. Timely repayment of obligations - for the consumer there is nothing worse than a delay in credit repayment, try to monitor the repayment.
2. Using financial product offers - a large amount of debt and overdue obligations in your credit history will be a sign that you are not solvent. Therefore, it is worth accepting offers from banks products only if you are sure of their timely repayment.
3. Don't be a debtor! Avoid debt collection actions and bailiffs for you - they show that the client had serious financial problems.
4. Having a credit card and timely repayment of obligations on it is a plus in your credit history.
5. Instalment purchases - the timely repayment of purchases by instalments is included in the BIK database and has a positive impact on our consumer opinion.

Other real estate located on the territory of the Republic of Poland can only represent additional security for a mortgage, but in order to receive a loan, you must prove that you are have a steady income. So the presence of assets will not be the main criterion affecting obtaining of a mortgage loan, but only an additional positive factor. The basis is still the amount of permanent and stable income of the applicant.

The real amount of the mortgage

It is difficult to calculate the real mortgage loan amount by yourself. There are free calculators in the Internet that will help you estimate the approximate loan amount for the given parameters, but this is a very individual process, and each bank has its own procedure and will analyse many criteria in its own way before naming the maximum amount.

The decision to grant mortgage largely depends on a debt-to-income ratio (DTI). This is one of the main information that affects creditworthiness. The type of DTI indicator is a ratio of all financial obligations to the amount of income, and is used in Poland. If the amount of monthly liabilities is more than 50 or 65 percent of income (this upper figure follows from the recommendation of the Polish Financial Supervision Authority), the credit decision may be negative. The amount that should be treated as income is all that remains after Tax and Social Security, when you are doing business and in the case of employment contract is the amount transferred to the account from the employer.

The main criteria for assessing the client's creditworthiness:

• Income. The Bank wants to know how much is received to a customer's account each month. The most important is a fixed income under an employment contract of indefinite duration. Borrowers with a service contract or agreement of work order are at a disadvantage. In such cases, banks can automatically reduce up to 20% of the income taken into account when assessing creditworthiness. But many banks may also consider such deals to be their main income after 12 months of continuous work.
• Sources of income. For a bank, the best client is one who earns a lot, working full-time and as a permanent worker. Interestingly, there is a list of so-called problem clients for the bank, which include seafarers, students, and entrepreneurs. An entrepreneur's income stability is at risk.
• The duration of receiving an income. For example, if you have an employment contract for an indefinite period, it is enough for the bank so that you receive income under it for at least the last 3 months. And if you own a business, the average income received during the last 12 months will be taken as a basis.
• Expenses. The bank will obviously be interested in how much your daily life is worth. Literally everything affects a client's creditworthiness: children, a car, renting an apartment (and its amount), expenses on food and bills, any permanent obligations (maintenance, equipment, other credits).
• Characteristics of the borrower. This is age, marital status, the ability to take out a mortgage together, for example, with parents or spouse, as well as a credit history, which you will learn about a little later.

All these elements (and many others) are included in the calculation of the so-called scoring. The more points a client gets the more chances he has to get a credit and the higher his creditworthiness is.

Mortgage repayment term

The Polish Financial Supervision Authority (KNF) obliges banks to recommend to retail customers a mortgage repayment period of up to 25 years. However, if the borrower wants to extend it, such an opportunity exists without exceeding the loan settlement period of up to 35 years.

What term to choose? It depends on many factors, and the answer will be very individual.

The maximum repayment term has its advantages. The main advantage is the lower instalment plan. Therefore, if the amount of instalments is important to you, a long term mortgage is a good choice. However, you should know that in this case the total cost will also be much higher. A maximum term is a necessity for many people because if it is shortened the creditworthiness also decreases. A shorter repayment term means higher monthly payments that won't suit everyone. However, you get less time to repay, and thus you leave more funds in the household's budget. This is also a good step if you want to get a second mortgage soon and maintain your creditworthiness.

However, it is worth to analyse carefully all the indicators. Do not forget: the longer the repayment term, the higher the cost of the mortgage!

To summarize, the timely repayment of the credit has a positive effect on the credit history and obtaining future credits from banks and other institutions. Credit history is of great importance and all data on previously taken loans and their payments are entered in the BIK databases. The presence of assets does not have a large impact on obtaining a mortgage, however, the actual income will be one of the main parameters for assessing the client's solvency. The mortgage term is 25-30 years with the possibility of early  repayment of the loan.