When a conventional loan is refused, it is possible to finance a property acquisition by mortgaging a property. It’s the mortgage. Advantages, specificities and conditions… We will guide you through the mazes of credit with mortgage.
Understanding the mortgage
A mortgage is a bank loan, the guarantee of which relates to the borrower’s property assets. To apply for a mortgage, it is therefore necessary to own one or more real estate. This type of loan can also be used for various destinations. It is thus possible to acquire:
– new or old property;
– a main or secondary residence;
– offices or commercial premises.
The mortgaged property must belong to the borrower:
– in proper name;
– in SCI provided that it is owned by the borrower.
The guarantee is not sufficient to be granted a mortgage credit. The borrower must demonstrate sufficient income to repay the monthly payments.
The advantages of a mortgage loan
First, mortgage credit reassures the credit institution since a possible default by the borrower is covered by the mortgage. The bank can indeed seize the property and put it up for sale in order to repay the capital granted to the owner of the property. But the mortgage has other advantages:
– loan insurance is not compulsory;
– the income does not need to be domiciled;
– no request for investments is required;
– the absence of professional activity is not an obstacle, since property income can suffice.
Our tips for applying for a mortgage
Credit with mortgage presents some specificities which it is necessary to understand well before initiating a request. You should actually know that the amount awarded depends on the appraised value of the property (s). But above all, the capital will correspond to 50%, even 70% of their value. Also, for a property appraised at $ 200,000, it is not possible to borrow more than $ 140,000.
In addition, there are some reservations to consider regarding the term of the loan which cannot exceed 20 years. And if the borrower is over 70, he will be required to repay the entire loan before he turns 90.
Most lenders require that you’ll spend less than 28% of your pretax income on housing and 36% on total debt payments. If you spend 25% of your income on housing and 40% on total debt payments, they’ll consider the higher number and qualify you for a smaller amount as a result.