Showing income for a mortgage application in a simple and efficient way.
In my last article, I focused on explaining the concepts that regulate how high an income should be for someone applying for a mortgage.
In today's article, I would like to show several options for how different banks calculate income and how the income can differ for the same client based on different calculation methods. In other words, if one bank denies you, another may be willing to finance you because they view the source and amount of income in a completely different way.
The biggest differences in acceptable income levels are for clients who provide income from self-employment. This creates a curious situation where the CNB strictly requires compliance with the indicators from the previous article, but what income the bank puts into the equation for the client is largely up to the bank.
Calculation of income for a self-employed individual
In the context of calculating the income of a self-employed individual from a tax return, "předanění" generally refers to the use of modified expenses.
For example, let's take a self-employed individual who works in the IT field and has an annual turnover of 1 million CZK. The self-employed individual applies expenses in the form of a flat-rate expense allowance, as allowed by the Income Tax Act. This flat-rate allowance is 60% for this field. Therefore, the tax base will be 400,000 CZK after deducting 60%. Since the actual costs in the IT field are minimal and banks are aware of this, it is possible to apply a modified flat-rate allowance that is reduced to 30% in some cases, to get a modified tax base of 700,000 CZK. This is almost double the income and allows for a higher mortgage.
Other fields have various modified flat-rate expenses based on typical actual costs. Simply put, there is a big difference whether someone is a painter and has expenses in the form of materials, or if they are a marketing consultant who buys a notebook once every two years and works from home.
Advocate, doctors, architects, and other selected professions
Clients from selected, highly qualified professions have the advantage that their income documentation is more lenient. In some banks, for example, it is possible to only base the calculation on account statements, where the turnover for a certain period is calculated and used as a basis for income calculations. The client can then take advantage of a stronger period when they receive larger payments and does not have to base it on their tax returns. If the client has significantly optimized tax returns, this option is even more useful.
Pre-approved loan payment offered by ČSOB/HB
We are getting to my favorite tool. It is unique on the Czech market and the only bank that offers it is ČSOB. Simply put, ČSOB automatically evaluates the client's income from the turnover on the current account. If the bank pre-approves the loan payment, for example, it states that based on the client's behavior on the current account, it is willing to provide a loan with a certain maximum monthly installment.
The amount of the installment depends on the turnover and the client's balance, with a maximum of currently CZK 60,000 per month, but a maximum loan volume of CZK 10 million. For entrepreneurs, this is an excellent tool to reduce paperwork when approving a mortgage, as no further formal income documentation is required. This option is also appreciated by employees who do not want or cannot provide proof of income from an employer.
In order to take advantage of this option, client is required to be Czech citizen or foreeign citizen with permanent residency in Czech republic.
Do you have a company and pay yourself a salary that is not sufficient to obtain a mortgage?
For the owners of limited liability company (s.r.o) the options for obtaining a mortgage have unfortunately decreased in recent years, but there are still some options available. Under certain circumstances, it is possible to base the calculation on the turnover of the s.r.o and calculate the personal income for the sole owner. There are also ways to base the calculation on the profit without the need to pay it out/distribute and tax it.
Therefore, before proceeding to increase the salary, I recommend consulting the options based on economic results.
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