There are many offers of mortgage loans to buy real estate, but which offer is the most advantageous? Do we have to choose a mortgage or is there another solution?
Housing property prices are still rising. What is good for the seller is not beneficial for the buyer. The price per square meter in the best locations is almost unpaid. It is very difficult to find the best house or apartment, and once we have found the right one, we need to act quickly, otherwise someone else can buy it sooner. In Central Europe, however, we still prefer our own apartment. Those who are considering buying are not in a simple situation.
When buying, we have to compete with investors who do not buy property for their own housing, but want to rent it or earn even more using Airbnb. They usually buy in cash, so if we do not have the necessary funds at hand, we have no chance against them. But what to do if we have to finance part of the price from some source?
The mortgage loan application is slower
There is no longer a bank that does not offer a mortgage loan. However, bank conditions can vary greatly. We care how much we have to pay for the loan. A properly selected loan can pay off in several respects.
Purpose loan or mortgage?
In order to make the right choice, we need to be very careful about loans and mortgage loans. Both types offer us many advantages and disadvantages. But the most important thing is what conditions we can accept.
What do we need to know about home mortgage loans?
Banks offer credit to buy real estate. This means that of this amount we can only execute the purchase transaction itself. We need to find other sources for smaller or larger reconstruction. The purchased property will be the security of the loan itself. So we can use the loan to:
- purchase of a new or used apartment / house,
- construction of a new apartment / house,
- consolidation of an older, disadvantageous mortgage loan.
If we apply for a home loan, we will have to meet many conditions of the financial institution. Much more than when applying for a special-purpose loan.
These criteria must be met in order for the mortgage loan application to be approved
Mortgages usually represent a much higher amount than conventional loans.
Therefore, the approval process is much longer. The purpose of the two loans is different. The applicant must meet stricter criteria than when applying for a loan.
- We cannot be negative-listed. None of the banks will provide a home loan if we are a bad debtor. In any case, they will require us to involve a co-debtor.
- We must be employed indefinitely and at least 3 months. The bank will calculate the maximum monthly payment it can offer based on the amount of our confirmed income. The latter, with a combination of maturity, determines the maximum amount we can get from the bank.
- Own resources. Banks demand that we have a certain amount of our own funds when we buy. The percentage – or amount – depends on the financial institution.
- Coverage. Since we have been repaying mortgages for many years, the bank cannot rely on our monthly income and therefore needs security. That is the very property we buy.
- Insurance against insolvency. Usually it is not mandatory, but for long repayment periods, each bank recommends that we choose insurance against default. We can suddenly lose the job.
Why can a non-purpose loan be a better solution when buying a property?
There are providers who offer us up to USD 1,000,000, and we don’t even have to state the purpose of use. These loans may suffice for those who have a greater share of the total cost of the property. In what cases is it worthwhile to supplement the purchase amount with a loan instead of a mortgage loan? Let’s look at a few such cases:
- if we don’t want another to buy that dream house, and we want the money quickly,
- if we need less than USD 1,000,000 – maximum amount of non-purpose loan,
- if we have a high enough income to pay relatively higher installments.
Purpose-free loans today can be obtained under very favorable conditions, for about 4.58% APR. If time is an important parameter, it seems worthwhile to solve the question with a non-purpose loan. It is necessary to calculate whether it is worth to choose a mortgage on better terms or to look for a suitable property.