Financing the purchase of real estate

The key to a successful deal is good planning!

Every deal is specific. Its boundaries are set by the parties, the buyer’s preferences, and the seller’s expectations. However, the first thing the buyer needs to do is secure the financing of the deal, meaning they need to know how they will pay the price.

There are various options: using their own funds, borrowing from family and friends, getting a bank loan in the form of a mortgage, and so on. Depending on the financing method of the future deal, the seller needs to take certain steps.

If you rely on financing from a different source than a bank loan and there is uncertainty in receiving the final amount for the transaction, secure the different development of events by signing a preliminary agreement. It should be drafted in such a way as to minimize the risk of losing the deposit.

Financing the purchase of real estate

The most common form of financing is through the provision of financial resources in the form of a loan from a bank (mortgage loan). The procedure varies depending on each bank. But the following main stages can be indicated:

  1. Preliminary assessment of our creditworthiness by the chosen bank;

Regardless of the credit institution’s assessment, every potential borrower should make their own assessment of creditworthiness. Since there is no specific methodology for assessing our own creditworthiness, this is most often done by balancing household income and expenses.

When evaluating expenses, it is important to prioritize them and determine the possibility of avoiding or postponing them. Naturally, we should start with expenses related to maintaining the household or business.

After the relatively fixed expenses, we should include some seasonal expenses related to buying clothes, vacations, etc. Limitations on certain expenses will often be necessary, and at this stage, we should ask ourselves if we are ready for that. The ultimate goal is to ensure that we will have the necessary means to timely repay the loan.

  1. Selection and examination of the real estate;
  2. Reaching an agreement with the seller;
  3. Signing a preliminary purchase agreement for the property;
  4. Applying to the respective bank for a loan based on a preliminary creditworthiness assessment;

This is also the moment when the bank requires collateral for the loan, such as guarantees, mortgages, and others. It is important to know that not every property can be used as collateral for the loan.

Financing the purchase of real estate

The status of the property is of primary importance here. On the other hand, its characteristics such as size, condition, location, etc. affect its market valuation. And this, in turn, is of primary importance for the amount of the loan that the bank would grant us. If the property that will be the subject of the future transaction will serve as collateral for the loan by registering a mortgage on it, the following steps are taken:

– Providing the required documents to the respective bank;

– Conducting an appraisal of the property by an appraiser appointed by the bank;

– Obtaining financing approval from the respective bank;

  1. Signing a contract for the purchase and sale of the property in the form of a notarial deed before a notary (acknowledgment);
  2. Registration of the sale and mortgage in the Property Register;
  3. After the registration of the completed sale together with the mortgage, the bank disburses the loan and transfers the funds to the seller’s account.

And last but not least, don’t forget that each transaction is specific and requires a different approach, as well as the acquisition of various documents in terms of number and type.

Author: Stanimir Stankov / VIP Clients Manager, New Home 1 / tel .: 0894 555 690

Photos: Freepik

Stanimir Stankov, VIP clients manager, New Home 1

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