There are a number of formalities involved in setting up a mortgage loan. One of them – a very important thing for the bank – is to find out what income the applicant has. Logically, the bank wants to prevent the client from getting into a situation where he or she cannot afford the loan repayments, as the bank would have to sell the property at a loss. Since the bank is not interested in such problems, proof of the client’s income has become an essential part of the mortgage process. In the following lines HYPOnaMIRU will describe what to look out for when declaring income.
Income from employment
Non-entrepreneurs must prove the amount of their income by means of a certificate from their employer with the total income for the last three months. This income is the net salary before deducting items such as pension contributions or food vouchers. The amount can therefore often be higher than what you see on your pay slip. This income statement is valid for 30 to 60 days from the date of issue and it is not uncommon for the employer to be contacted by the bank to confirm the accuracy of the statement.
The mortgage applicant must not be in the notice period or probationary period, but again it depends on the terms and conditions of the individual banking institutions. If you have a fixed-term employment contract, then the contract should be valid for more than one year. In any case, after the termination of this employment relationship, you must provide the bank with an extended contract or a contract with another employer.
If you work under an employment agreement, which differs from a non-recognisable employment agreement in that it is subject to health and social security contributions, you may be able to succeed in setting up a mortgage. However, you have to prove the stability of this income, which is understood to mean, for example, working on a work activity agreement in addition to your employment, i.e. as an earner. However, not every bank offers this option. Only a fraction of banking institutions accept a work arrangement, and you will usually pay for it.
Self-employed and proof of income
To prove their income, self-employed persons must submit their tax returns to the bank at least two years back. The problem arises with new sole traders who do not have tax returns for logical reasons.
The situation is also complicated for those sole traders who tried to save as much as possible on health and social insurance contributions during the year. A clever accountant may have saved them money by “tax optimisation”, but this can be a problem when applying for a mortgage. The self-employed person then has a hard time proving that they actually have more income than they report on their tax return.
There are therefore several options for sole traders, either to take out a mortgage without proof of income (usually quite disadvantageous) or to adjust their tax return in advance so that it shows good results.
We can include parental contributions in other income. If one parent is on maternity leave. Disability pensions and lifetime annuities. There are also alimony payments (3,000 to 4,000 CZK per month per dependent child), foster parents’ fees or honoraria, which are neglected by many. These incomes can only be counted if the bank can prove that they have been paid continuously for 12 months each month. For example, only 30% of a monthly travel allowance can be included in income.
Non-deductible income includes, for example, the aforementioned employment contract, but also partial disability pensions or social benefits, even if the income is regular.
Deductible income includes classic employment income, i.e. salary and income from business. Recognizable income is also income from rent, real estate, or the already mentioned parental allowance or full disability pension – these incomes differ in the level of recognition for each bank, e.g. some banks recognize income from rent up to 70% and so on.