Mortgage Relations with the Bank: the Basics

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The types of loans granted by banks are numerous and vary depending on the needs of the customer: ranging from the request for a loan for the purchase of the first house to mortgage construction to build or renovate a property. The latter is a particular category of loan because it is granted in the presence of specific requirements that differ from the cases in which a mortgage is applied to buy a house.

Understanding the Loaning Process

As the term “building” suggests, the loan is provided by the private mortgage lender if the client needs to build a real estate structure or if he intends to carry out major renovations on an existing building, but does not have the necessary liquidity to cope with expenses. In fact, the building sector includes not only the construction, but also all those interventions that will serve to adapt a property to earthquake regulations, energy saving laws or those municipal regulations that allow you to redefine the layout of a house. Like what happens in the cases of granting the loan for the purchase of the first house, even with the building loan the debtor can obtain part of the capital necessary for the construction or renovation of the property: the main difference consists in the methods of supplying the loan, since only in the first case the sum granted to mortgage will be paid one-off.

How is the Provision of the Building Loan

When a mortgage is requested, the bank generally does not grant a sum equal to the entire value of the property but allows up to 80% of the cost of the house to be obtained. If the house is already built and ready to be inhabited, the building is a guarantee in all those cases in which the borrower was not able to return the sum obtained by loan. With 80% of the value the bank would be able to recover a large part of the debt by proceeding by auction and protect its capital from any default by the borrower. In the case of building loan construction or renovation works change the actual value of the building: on one hand the construction of a structure does not guarantee the recovery of the value loaned (the construction could be suspended for any reason) On the other hand, the restructuring could negatively affect the sale of the house by depreciating its market value. Not being able to register mortgages neither on the building to be built, nor on the project of restructuring the house, the bank protects itself in this way, providing the loan from time to time depending on the progress of the work. In this way, by means of an appraisal, it will be possible to verify the type of interventions and the value acquired by the building at specific times, thus ensuring the risk of non-performance by the debtor.

For more information or if you need a mortgage planer check www.unbeatablemortgages.ca.

 

Geneva A. Crawford

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