How to check your creditworthiness for a mortgage?

Current (and future) property prices are not encouraging. Many of us cannot afford to buy a flat or house without the help of a loan. The desire for a place of one's own is strong, though, and we often turn to a mortgage for help. How can you check your creditworthiness, and what affects it? Find out!

• Creditworthiness – what does it mean?
• How to check your creditworthiness?
• All the information you need
• Creditworthiness too low for a mortgage? It is not the end!

Creditworthiness – what does it mean?

In short, creditworthiness is the likelihood that we will be able to repay the loan instalments. Banks check it to avoid a situation in which it is hard to recover the money lent. What makes up a potential borrower's creditworthiness?

• Level of income – the most important, though not the only, factor. The bank must know that from the income we earn we will be able to set aside part towards repaying the loan
• Sources of income – the bank will certainly view someone in permanent employment differently from someone living off civil-law contracts (umowy zlecenie)
• Other liabilities – here the bank will scrutinise all the applicant's other financial commitments. Not only other loans count, but also instalments and the like
• The borrower's age
• Down payment
• Credit history – a person who has previously repaid several loans without problems will have higher creditworthiness than someone applying for a loan for the first time.

Other elements that affect creditworthiness are the type, amount, term and number of loan instalments. The bank may also require a guarantee or other collateral (e.g. movable property belonging to the borrower).

How to check your creditworthiness?

Before we start applying for a mortgage, it is worth checking for ourselves how high a loan instalment we can "bear" with our current earnings and expenses. How do we do it? If we regularly keep track of the household budget, such a calculation should pose no problem. All you need to do is subtract living expenses from monthly income and "set aside" a certain amount as savings (in case of an emergency).

A more reliable and more detailed tool is a loan calculator. You will find it on the website of the bank from which you want to borrow. It is also worth comparing the calculators of different lenders. Let us also remember that the tool gives only indicative results – we will get full and reliable calculations only after submitting an application.

One more very important note: to obtain a mortgage, a down payment of 20% of the property's value is required.

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All the information you need

Before submitting a loan application, we should prepare the data the bank will need to calculate our creditworthiness. The bank employee should gather information about:

• Assets owned
• Level of earnings
• Form and length of employment or business activity
• Other financial liabilities
• Number of people in the household
• Fixed monthly expenses

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Creditworthiness too low for a mortgage? It is not the end!

It may happen that our creditworthiness turns out to be too low to obtain a mortgage. This does not mean, however, that we have to give up on the dream of a home of our own. Instead, it is worth trying to improve our score. How can we do that?

• If we have credit cards and an overdraft on our account, giving up both can slightly improve our creditworthiness.
• We often forget about bonuses that we receive as part of our pay. It is worth mentioning them and adding them to income.
• The longer the loan, the lower the instalments, and consequently – the higher the creditworthiness.
• Increasing the down payment will also help. Perhaps it is worth waiting a few months and applying for a mortgage with a higher initial payment?
• If your spouse works, you will get higher creditworthiness if you apply for the mortgage together. This works only if you have signed a prenuptial agreement (intercyza).
• Similarly, if your spouse does not work and has no income, signing a prenuptial agreement will give the single applicant (the working spouse) higher creditworthiness.
• A positive factor affecting a potential borrower's creditworthiness will also be consolidating or extending existing credit liabilities. This will lower the monthly instalments.

If you need even more information about creditworthiness, or would like advice on mortgages, write to us!