Your mortgage is approved, and yet, the property might not get paid for. Not because of the bank, but due to mistakes that happen between approval and disbursement. And that's exactly what we're going to talk about today. Because an approved mortgage doesn't mean a paid-for property.
The truth is, a number of risks are still lurking between approval and disbursement—that is, the payment of the purchase price. This entire part of the process actually requires more cooperation from everyone involved than the approval itself. The good news is that everything you need to do is very clearly defined, and it's mostly just another pile of paperwork. If you want to know what to expect after your mortgage is approved and what needs to be done to successfully draw down the funds, this article is for you.
The moment the bank says the mortgage is approved, most people breathe a sigh of relief. The biggest risk—the risk of not being approved or being rejected—is behind you. But it's crucial to get one thing straight right away: approval doesn't mean it's all over. Above all, you need to know that a bank never just sends money out on its own. It's right after the approval that the biggest chunk of paperwork begins for the client, and you don't want to underestimate this.
Clients often ask me, "When will the funds be disbursed?" The only correct answer is that it depends mainly on the client and, possibly, the sellers. The bank doesn't really have a major influence on the timeline in this process. This is a huge contrast to the approval process, where the bank is often the bottleneck.
It's worth mentioning that the conditions for disbursement differ from bank to bank, but the basics are usually similar. Today, I'll only cover disbursement for a purchase, because that's where time is most sensitive—you're up against deadlines from the reservation agreement and, subsequently, the purchase agreement.
Signatures, Signatures, and More Signatures
After approval comes the signing, and there's quite a bit of it.
First, you sign the loan agreement. Many banks now allow for remote signing, but often an in-person meeting is still required, sometimes even with pen and paper. I know, it's a bit 20th century. Along with signing the loan agreement, you'll receive the mortgage deed, which you'll then take with you to sign the purchase agreement.
The purchase agreement is signed after the loan agreement. Not that it's strictly necessary, but it's practical. You only get the mortgage deed after signing the loan agreement, and you'll need the seller's signature on it, so this way you don't have to meet twice.
What If the Purchase Falls Through?
Let me answer a common question right away: "What if the purchase agreement doesn't get signed in the end, but the mortgage agreement is already signed?" It's not a problem. It's rare, but it does happen that for some reason the purchase agreement isn't signed. You might not reach a final agreement, or—and unfortunately, this is a relatively common, quote-unquote, reason from my experience—the seller passes away.
I know, it sounds awful, but a transaction not being completed after the reservation agreement is signed is really very rare. And, curiously enough, the most common reason is indeed the seller's death. When this happens, the issue of a potential penalty for non-disbursement comes up. Let me put your mind at ease right away: it's customary for civilized banks not to charge this penalty if it was objectively impossible to complete the deal. However, be warned, there are banks on the market that have no qualms about demanding a penalty in such situations, and it might not be a small one. It reminds me that there are some banks I wouldn't get a mortgage from, no matter how cheap it was.
But back to the topic. So, you've signed the loan agreement, you have the mortgage deeds with you, and you're heading to sign the purchase agreement. On this occasion, you'll also sign the escrow agreement and the aforementioned mortgage deed.
The Mortgage Deed and the Land Registry
Now, the mortgage deed needs to be delivered to the Land Registry. There are two ways to do this:
- The paper route: You submit it to the Land Registry's filing office along with a so-called "application for registration of a lien."
- The digital route: A very popular option today via a data box. It works like this: the original paper mortgage deed with all signatures is converted into a digital format (this is called an authorized conversion) either at a Czech POINT or by a lawyer, and the electronic version is sent to the bank's data box. By doing this, you've submitted the deed to the bank, and the bank will send it to the Land Registry on your behalf.
If the bank allows this method of submission, I highly recommend using it. You'll avoid running around to the Land Registry, and you won't have to deliver the original mortgage deed to the bank. The whole thing is much simpler and leaves far less room for error. With the paper version, you have to deliver one original mortgage deed, along with the application for registration stamped by the Land Registry, back to the bank.
In the vast majority of cases, you can now draw down the funds based on a submitted application for registration of the lien. This means you don't have to wait for the 20-day protection period at the Land Registry to pass.
The Paperwork Continues: What the Bank Needs
The purchase agreement and the escrow agreement can simply be sent to the bank as electronic scans. Most banks nowadays have an option to upload documents directly through online banking or other apps. I recommend using this, as it also gives you a record of what's been submitted and what's still missing. Plus, it's the most reliable delivery method. If you drop the agreements off at a branch, for example, you have to trust that they'll make their way to the right department in time.
What are the other conditions for disbursement?
- Payment of your own funds: Most banks want to see proof that you've paid the portion of the purchase price that's coming from your own money before they disburse the loan. A simple PDF of the completed outgoing transaction from your online banking will do the trick. The first part is often the reservation deposit, so you'll need to provide proof of that payment to the bank as well.
- Property insurance: Yes, even before the property is yours, you have to insure it according to the bank's requirements. The bank sets a minimum insured amount, and the property must be insured for at least that much, whether it's a house or an apartment. The insurance is valid even though you don't own the property yet.
- Specific conditions: Some banks have specific requirements. One condition worth mentioning is a certificate of no tax arrears from the tax office. I have to admit, the reason for this requirement is a bit lost on me, but if you're self-employed, you might need it. It's a good idea to ask about this condition in advance, as it can take a while for the tax office to issue the certificate, and you don't want it to hold you up.
The Grand Finale: The Disbursement Request
Even when you've provided the bank with all the necessary documents, the bank won't send any money anywhere on its own. It needs your explicit instruction, which is the disbursement request. Nowadays, this is submitted electronically, usually through online banking. In the request, you simply need to copy the payment instructions from the escrow agreement. Only then is the job done, and all that's left is to wait for the money to arrive in the account.
The processing time for a disbursement request varies slightly between banks, but it's usually around five business days. If you're in a hurry, there are usually ways to speed up the disbursement. It's a good idea to have at least 10 business days for disbursement in your purchase agreement. And make sure they are actually business days. With Christmas approaching, I probably don't need to explain why.
If everything is in order, the bank will release the funds. The money is credited to the attorney's or notary's escrow account, and then the property transfer can begin. Your work is now done. All that's left is to wait for the Land Registry to register your ownership rights, and then you can get the keys to your new property.
It's Not as Complicated as It Looks
When I throw all of this at you at once, it might seem complicated. But if we sum it up, the bank wants to have:
- Collateral: That's the mortgage deed.
- An insured property.
- Verification that it's sending the money in accordance with the agreements (purchase and escrow).
- Verification that you've paid your share of the money.
Each of these points makes sense and has a good reason. So, in the end, it's not that complicated once you understand what each part is for.
