How to take a loan for an apartment without a down payment?

Credited purchase of real estate requires a specific own contribution. And what if you could not get the required amount? Do you have to postpone the dream of your own M? We explain whether it is possible to take out a loan for an apartment without a down payment. has more information

Fixed income, little or no debt, and an excellent credit history. Unfortunately, sometimes this is not enough to get a loan for an apartment. In addition to creditworthiness and reliability of payment, you also need to have the required own contribution, and this is often an insurmountable barrier. Therefore, it is not surprising that Dollarstat data show that in 2019 as many as 46 percent lived with parents. Poles from 25 to 34 years old. This ratio would certainly be much lower, but now, in order to be able to think about a mortgage at all, as a rule, you must first accumulate a minimum of tens of thousands of USD.

What is and how much is the own contribution to the mortgage?

What is and how much is the own contribution to the mortgage?

Own contribution is nothing more than the client’s participation in the investment financed with the bank’s support. The requirement to make it may appear not only with a mortgage, but also with other obligations, such as an investment or car loan. Importantly, however, in the case of a home loan, its minimum size is strictly defined by law. In recent years, it has been gradually raised: first from 0 to 10, then from 10 to 15, and finally from 15 to 20 percent of the property value.

The currently applicable 20% minimum own contribution is considered the target level of collateral, which should not change in the coming years. For many people planning to take out a mortgage, however, it is a poor consolation – it is enough to mention that with a loan purchase of a flat for 400 thousand USD, the required own contribution is up to 80 thousand USD.

The threshold is only the minimum required by the bank, so the borrower can provide any own contribution higher than this value. It is worth noting that the larger the latter, the lower the loan amount, and hence the associated costs.

Why do banks require a down payment?

Why do banks require a down payment?

The requirement to make a 20% own contribution results from the modified Recommendation S, which was introduced by the Polish Financial Supervision Authority in 2017; however, the document stipulates that by purchasing low own contribution insurance, the customer can provide a smaller (but not less than 10 percent of the investment value) own contribution. Mortgage banks are required to follow these guidelines, for the sake of both themselves and their clients.

The main reason why it was decided to introduce such collateral was the need to provide greater financial security to banks, mortgage borrowers, but also to other participants of the financial market. To be able to better understand the reasons behind it, it is enough to imagine the situation of a borrower who took a loan for one hundred percent of the price of the apartment, but after a few years, due to financial problems, he was forced to sell the property.

If at that time its price would drop by a few or several percent compared to the purchase price, the borrower would be left without a flat and with an unpaid part of the debt. What if he did not have the means to pay off the debt? Or if the property, such as a large house in an unattractive location, did not find a buyer for many months?

The example presented illustrates a rather extreme case, but there were many such in the past. The requirement to make an own contribution effectively reduced the number of problematic loans.

Own contribution is not just cash!

Own contribution is not just cash!

As we have already suggested, the answer to the question in the title of the article can be only one: you can not take out a loan for an apartment without own contribution or another form of security. Importantly, the S Recommendation issued by the PFSA does not indicate that the latter must necessarily be cash. This means that without savings of 20%. You can still get a mortgage on the value of the apartment or house you are buying.

The best situation is for those who have accumulated at least 10% own contribution as well as people who take out a loan to build a house. These groups of applicants have at their disposal the most options that allow them to deal with a low own cash contribution. However, regardless of who applies for a loan without a sufficient amount of savings, it must be borne in mind that even if a solution is possible, it is not always worth using it – financial security should always be a priority.

Ways to deal with your own contribution

Ways to deal with your own contribution

Below we’ve gathered potential solutions that help you deal with the problem of missing cash and get a mortgage. We emphasize that individual ones are not always available in a given bank or for a particular borrower.

Insurance of missing own contribution

People who have accumulated at least 10 percent potential loan amounts, they can take out a low own contribution insurance. Such a product does not give any real protection, but allows you to receive financing despite the lack of sufficient savings. Using it usually increases the bank’s margin by about 0.2-0.3 percentage points – the increased installments are paid until the loan balance drops to the required level of 80%. property values.

Collateral on another property

People who already own a house, a flat or a plot of land can set up a mortgage on the property. The additional property will secure the repayment of the loan and exempt it from the requirement to make an own contribution. Importantly, however, it cannot secure another obligation or have personal easement.

Funds accumulated under the third retirement pillar

Some banks, as a substitute for own contribution, accept money set aside as part of IKE or IKZE. Obviously, this does not involve the necessity of paying them out – the creditor is hedging the funds up to the required amount.

Pledge on securities

The bank may also accept pledge on secure securities. Some lenders only accept government bonds as collateral, but others also recognize corporate bonds, investment fund units and even shares. Importantly, however, this way you can usually top up to half the required own contribution.

Property valuation above the purchase price

This option is available only in individual banks, and basically only for people purchasing apartments and houses from the secondary market. It consists in the fact that the lender accepts as its own contribution the difference between the property valuation and the actual purchase price. Regardless of the size of this difference, it expects a minimum own contribution of 10%. loan value.

Additional options for house builders

In the case of building a house with the help of a mortgage, the own contribution can be a plot of land on which the property will be erected, or investment costs previously incurred, such as the purchase of materials, labor, preparation of an architectural design.

How to take a loan for an apartment without a down payment – summary

How to take a loan for an apartment without a down payment - summary

As you can see, it is not possible to get a loan for an apartment without your own contribution or another alternative form of security. On the other hand, there are quite a few solutions that allow you to bypass the need to postpone 20 percent. property values. Of course, the most-used insurance is the missing own contribution, which can be used by almost anyone who has collected at least half of the amount needed. Other options are more favorable in financial terms, but are available mainly for those who have valuable non-cash assets.