Buying or building a house is a costly investment that is rarely financed out of pocket. When there is a shortage of funds to carry it out, it is best to take advantage of the bank’s credit offer. Before visiting a given lender, however, it is worth getting acquainted with the specifics of a home loan.
The money needed to buy or build a house can be borrowed in several different ways – you can mainly choose cash loans, mortgages and mortgages. If a large amount of funds is insufficient to finance the investment, the cheapest option is the best option. Who can take advantage of such a home loan? What exactly is it? What formalities are associated with obtaining it? Here are answers to the most important questions that arise in the context of a mortgage.
What is a home mortgage?
A mortgage is nothing but a long-term bank loan that is granted for the purchase or construction of a specific property. The basic condition for receiving it is to enter a mortgage in the land and mortgage register of the real estate being credited. The mortgage is established in favor of the bank and is a security for the payment of the liability. Thanks to this solution, the interests of the lender are well protected, and hence, he is willing to propose very attractive financing conditions. Cash loans, credit cards or revolving limits do not give banks such comfort, which is why they are much higher in interest.
What is the home loan for?
The mortgage loan for a house is, in principle, used to finance the purchase or construction, but in practice, the funds obtained through it can also be used for other purposes. Depending on the structure of the loan agreement, it may be extension or renovation of the property or purchase of equipment. Sometimes, some of the money can be spent on non-investment related expenses, such as travel, weddings and the purchase of a new car.
How much can you borrow under a mortgage?
The amount that a customer can borrow under a mortgage is an individual matter. This is primarily determined by the value of the real estate being credited, but also by the client’s financial standing and credit history. If the latter two are of sufficiently high quality, the bank can lend him the highest amount possible, which in principle is 80 or 90 percent of the value of the property. This means that if the investment cost reaches USD 1 million, the loan for a house may amount to even 800 or 900 thousand USD.
How long can you take out a home loan?
Several hundred thousand or even over a million USD borrowed as part of a home loan means a serious financial liability. Nevertheless, banks are trying to make repayment as easy as possible, which is manifested, for example, in offering long loan periods. Currently, such debt can be paid back 30 or even 35 years, so that the monthly installment does not have to be an excessive burden on the household budget.
It is important that not every customer can count on getting such a long financing period. Lenders require that the entire home loan be repaid before the age of one. This age limit is usually 70 or 75 years, which means that, for example, the current 50-year-old will be able to repay the loan for no longer than 20-25 years.
Who can get a mortgage?
To be able to get a home loan, you must meet many different conditions. First of all, financing is provided only to adults who want to build or purchase a property located in Poland. In addition, own contribution should be provided, which according to the regulations should correspond to 20%. investment value; if you take out special insurance, the bank will accept a lower (but not less than 10%) deductible.
If these criteria are met, you can complete and submit a home loan application with the necessary documentation. On the basis of these documents and data collected in BIK and debtors’ registers, the bank makes a decision on granting financing. Thanks to this information, he can find out, among others, the client’s earnings and monthly costs, as well as his previous history of repayment of liabilities. All this allows him to estimate his creditworthiness, which is the maximum amount of credit that, in his opinion, he will be able to repay on time.
How to buy or build a house on credit, or the credit process in practice
In fact, applying for a home loan is a complex and time-consuming process that requires a lot of commitment on the part of both the client and the bank’s employees. In order to be able to prepare better for it, it is worth examining what the course of such an undertaking should look like.
- Checking your own credit standing. First, it is worth using a special online calculator and verify the amount of credit you can count on.
- Choosing a house or preparing a construction project together with a preliminary cost estimate (in the case of building a property). On this basis, you can know what amount you will have to borrow.
- Finding a good home loan offer. Mortgages are granted on attractive terms, but in the case of such large liabilities, even a slightly lower interest rate means measurable financial benefits. The investor should carefully follow the banks’ proposals, remembering that individual banks will be willing to lend him different amounts.
- Complete the necessary documents. The bank requires the presentation of personal and financial documents, as well as real estate documentation.
- Conclusion of a preliminary contract (when buying a home from the secondary market). Such a document protects the interests of both parties, giving them time to specify the details of the transaction.
- Submission of a home loan application. It is best to submit applications to three or four institutions so as to increase the chances of a positive credit decision and obtaining favorable financing conditions.
- Receipt of a credit decision and familiarization with the loan agreement. If the customer accepts the proposed conditions, he remains to sign the contract.
- Launching a loan. If the loan is to be used to buy a house, the amount due will be transferred to the seller’s account; for real estate construction, the loan is usually paid out in tranches as construction works progress.
In the article, we have discussed only the most important issues that appear in the context of a credited purchase or construction of real estate. If you want to take out a loan for a home in an efficient, safe and profitable way, you need to delve more deeply into the topic – if necessary, you can always use the support of an independent credit advisor. However, it is worth undertaking this effort, because a mortgage is the best and often the only available method to finance a housing investment despite the lack of cash.