When applying for a home loan there are some bank guarantees that financial institutions require for the loan to be approved. It is no longer enough to have a steady job or a low effort rate, now banks are asking for some more guarantees for a mortgage.
We will explain exactly what these requirements are made by financial institutions so that you do not see your credit application declined. Combining these guarantees with your financial stability, you will see that you get the loan approved. But first, you must have a credit that suits your needs and ability to pay.
Bank Guarantees: What Are They and What May Be Required?
The time has passed for banks to lend without requiring too many bank guarantees from their clients. Currently, and especially after the financial crisis, banks have begun to ask for some guarantees to protect themselves against defaulting on mortgage repayments.
Bank guarantees are then strategies that banks have to watch out for and if the customer fails to repay his loan installments, they can somehow get back the amount that was lent.
1) Initial Entry: ensures you have money to pay
A bank guarantee that you can give to the bank you want to mortgage on is to have a portion to give as an initial down payment on the property. The initial down payment is the difference in the total loan amount with Loan-to-Value (LTV).
For example, if you want to buy a property of 150 thousand dollars, with an LTV of 80% (financial entities usually make up to 80% of the value of housing), the initial down payment that you must have available is 20%. Therefore, the amount for the initial entry will be 30 thousand dollars.
This way, it will be more favorable to get your credit approved, as the financial institution understands that it has an available amount saved to use as an initial down payment.
If you have money available for this situation, in principle you will be a person who manages your personal finances as well as will be able to meet your monthly installment payments.
2) Real estate guarantee
The mortgage requirement by the banking institution is taken for granted. It should be a mortgage on the property to be financed, so if you fail to repay the loan, the bank can get back the amount.
Thus, banks often ask for a mortgage on the housing – this could be the property purchased, built, could be the works of the property (if they were financed by the loan) or even the land on which it falls. the loan.
If you fail to repay the loan, the bank with which you have taken out the mortgage may be able to take legal action to repay the mortgage and you will eventually be deprived of the mortgage as this is a bank guarantee of the financing.
3) Life insurance is mandatory
As a reinforcement of the mortgage, banks often require a life insurance underwriting as a bank guarantee for both the client and his spouse, if applicable, to cover the full amount of the loan.
Life insurance usually includes disability and death cover. This guarantees the settlement of the credit debt in case the insurance holder becomes unable to work or in the event of his death.
The home loan customer may choose an insurer to purchase this type of insurance and the financial institution has a duty to inform the insurer of the evolution of the amount owed so that it updates the insured capital.
4) Guarantee of other properties
There is an option for collateral mortgage: this may be assigned to a property other than mortgage, provided it is a property free of charge or other mortgages.
If another property is covered by the mortgage guarantee, banks ask for an appraisal of that property to see if the property is similar to the loan amount. If it is not of the same value as the property to be purchased, the mortgage security must be partially covered by the property of the requested credit.
For example, if you want to buy a house valued at 120,000 dollars but you already have a holiday home valued at 80,000 dollars, you can take out the mortgage you want to buy on a vacation home.
In this particular case, assuming that the bank only finances 80%, the mortgage of 100,000 dollars is made on the holiday home (which is given as collateral) and the remaining 20,000 dollars will be part of the mortgage of the property to be purchased. It is thus possible to make a partial or total mortgage of a property that already has to buy another.
5) Have a guarantor for your mortgage
One of the most common bank guarantees required by banks is the existence of a guarantor for home loans. As this type of credit is usually large, the bank needs to have a guarantee that someone will repay the credit if the person who buys it fails to pay.
Thus, the guarantor is responsible for repaying the loan if the customer defaults. Although debtors enter negotiations with the financial institution first, the truth is that if the payment is not made, the guarantor is liable to answer the debt in question.
Other recommendations for getting a tailor made loan
In addition to these bank guarantees, you should consider other important aspects: from interest rates to choose from, bank fees and other mortgage-related costs that exist, spread negotiation or even the installment payment arrangements that are available.
We therefore advise you to compare the available mortgage loans on the market and to choose the one that best suits your financing needs.