A real estate loan is an opportunity to receive a relatively large amount of money for purposes that in most cases are not required to be declared. Unlike a mortgage, when the housing purchased for borrowed funds becomes a collateral, the recipient of such a loan can provide as collateral any real estate that he already has at his disposal.
Benefits of a real estate loan by HomePath
Conducting such a transaction is beneficial for both the bank and the borrower. The bank can be sure that in any case it will receive its money back. The borrower can count on the approval of the application for a large amount and acceptable interest.
Among the main advantages of issuing a loan secured by real estate, it is especially important to note the following:
- as practice shows, banks approve most applications from those who are ready to provide an apartment or land plot as collateral;
- the maturity period can be quite long, in some cases it reaches several years;
- the loan amount depends on the collateral and can be quite large – there are cases when banks entered into an agreement with borrowers in the amount of ten thousands of dollar.
Also, many lending banks offer those who use their cards or opened a deposit with them, more favorable terms. The interest rate can be reduced by 1-3%.
Disadvantages of a real estate loan
The main disadvantages of such lending are:
- the loan amount cannot exceed 70% of the appraised value of the property;
- the application is processed quickly, however, due to the peculiarities of the registration, the process of signing an agreement may take up to 1 month;
- it is necessary to order a real estate appraisal and insure the object, and the costs are imposed on the borrower;
- real estate is encumbered for the entire time during which it is a pledge, which means that it cannot be sold, exchanged or donated.
However, the most serious disadvantage of issuing a real estate loan is that you risk losing it. If you do not systematically make payments and do not cope with the financial obligations assumed, the bank gets the right to sell the collateral in order to recover the losses.
A financial institution will not take back real estate as collateral if:
- the duration of the delay in payments does not exceed 3 months;
- the amount of unfulfilled obligations is less than 10% of the value of the collateral specified in the agreement, fines and penalties are not taken into account.
What kind of real estate can serve as collateral?
In theory, a potential borrower can offer the bank any real estate that he has as collateral. In practice, of course, the bank agrees to pledge the property that it can sell if the borrower ceases to fulfill its loan obligations and does not make payments. Therefore, the following can serve as collateral:
- private houses;
If you offer an apartment as collateral, then the likelihood of application approval will be higher. However, if you expect to use a land plot as collateral, then, quite possibly, the bank will refuse.
Each financial institution has its own ideas about what the collateralized real estate should be. Most often, the requirements for it are as follows:
- it should not be older than 50-60 years and not be in an emergency condition;
- it should be located in the city or at a distance from it not exceeding 250 km, and at the same time not in an earthquake-prone area;
- it must be completed, undergo a technical inventory and registration with government agencies;
- walls of real estate can be brick, monolithic, reinforced concrete, but in no case adobe or frame-reed;
- if there are redevelopments, they must be legalized.
At the time of registration of the property as a pledge, the owner should not have debts for utilities.
The property does not have to be your property. There are banks that are ready to accept apartments, houses and land plots of third parties as collateral, which are indicated in the agreement as pledgers.
Basic requirements for borrowers
Banks independently determine not only the terms of lending and requirements for real estate accepted as collateral, but also the requirements for borrowers.
As a rule, the potential recipient of the borrowed funds should:
- be a citizen of the United States;
- be at least 21 years old – at the same time, at the end of the repayment period, he must not have reached retirement age;
- have a continuous work experience of at least 6 months, of which at least 4 months – at the last job.
A real estate loan is convenient and profitable. This financial service is useful for those who want to get a large amount of borrowed funds. At the same time, as collateral, you can use a variety of real estate that meets the conditions established by the bank. Requirements for borrowers practically do not differ from those that apply to any potential recipients of loans.