Forms of financing property purchases
If you are planning to buy a property, it is essential to consider its financing options. There are several ways to finance the purchase of a property on the market. Each method has its advantages and disadvantages. So let's take a look at the most common and affordable options:
Own cash (Vlastná hotovosť)
The easiest and safest form of financing is to use your own savings. When buying a property, you can use the cash you have available, or deposit it in a bank or notary's escrow, which will ensure a safe transfer of money only after all the conditions of the purchase contract are met, which is most often the registration of the new owner on the Title Deed. Usually, own funds are used to purchase a property from the sale of another property.
Mortgage loan (Hypotekárny úver)
A mortgage loan is the most common form of financing the purchase of real estate. Banks provide this loan with a long-term maturity of 30 years and the possibility of extension by a maximum of 10 years, with the real estate serving as collateral. It is usually possible to obtain financing for up to 80% of the value of the real estate (exceptionally up to 90%), the rest must be in your own resources. The advantage is a relatively low interest rate and the possibility of tax relief on interest. The disadvantage is long-term obligations and strict creditworthiness conditions. Banks provide mortgages to clients who have reached the age of 18. The maximum age is not limited, but the maturity of the mortgage is limited. Some banks have a specified limit of up to 65 years (exceptionally up to 70 years). The interest rate on a mortgage is fixed (fixed) for a fixation period, which is usually 1, 3, 5, 7, 10 or 15 years.
Loan from a building society (Úver zo stavebnej sporiteľne)
Building savings is a specific form of housing financing, where the saver first creates his own resources by saving, which he can then supplement with a building loan or a bridge loan. The advantage is that it is easier to obtain a loan and the possibility of drawing on state support. The disadvantage is usually a lower loan amount and the need for a longer savings period before obtaining a loan. During the savings period, the funds are valued with interest.
Loan from the State Housing Development Fund (Úver zo Štátneho fondu rozvoja bývania)
The ŠFRB offers loans with favorable terms, especially for young families and low-income groups of the population, such as single parents, disabled people or children from orphanages. The condition is that the applicants are under 35 years of age or married couples with a minor child under 6 years of age. A loan from the ŠFRB can be used to purchase or build an apartment or a family house. The guarantee is directly the real estate. The possibility of financing is limited by the size of the real estate. Support is provided in the form of a loan, up to a maximum of 100% of the acquisition cost of the building, up to a maximum of €180,000. The loan maturity period is a maximum of 40 years or up to the 65th year of age of the applicants.
A combination of the above options (Kombinácia)
In practice, it is often most effective to combine several sources of financing. For example, it covers part of the purchase with your own savings, finance the rest with a mortgage loan and possibly use a loan from a building savings or ŠFRB. Such a combination allows you to better adapt the financing to the needs and capabilities of the buyer and thus reduce monthly payments or overall costs. However, knowledge of the processes of all types of financing is necessary.
| Form of financing | Advantages | Disadvantages |
|---|---|---|
| Own cash | No interest, simple, safe | It requires large savings. It does not create room for spreading financing over time as with regular repayment. |
| Mortgage loan | Long maturity, loan up to 80% of the property value, possibility of applying tax breaks. | Long-term commitment, high repayment rate, strict creditworthiness verification conditions. |
| State Housing Development Fund | Favorable conditions for low-income applicants. Favorable conditions for young people or parents with a child under 6 years old. Interest rate fixed for the entire repayment period. | Limited conditions, need for a guarantee. Limited limit for the property size, set maximum loan amount of up to 120,000 EUR. |
| Building society | Easier to obtain a loan, state support. Interest rate fixed for the entire repayment period. Possibility of repayment up to the age of 70. | Necessary need to save 2 years before drawing. Lower loan amount. |
| Kombination | Flexibility, better customization. | It requires good planning and knowledge of different types of financing. |
When deciding on financing the purchase of a property, it is advisable to carefully consider all options, compare offers from banks and other institutions and choose the solution that best suits your financial situation and future plans. But we are here for you for that too. If you need advice on how to finance the purchase of a property? Contact us using the form below.
Written by:: Mária Cillerová RSc.
