Until a few years ago, credit institutions did not usually grant amounts beyond 80% of the home’s appraised value they wanted to buy. But the rising cost of housing has meant that more people need to borrow more than that 80%.
Also, family savings have decreased, so few people will count the remaining 20% in their coffers. To which we must add expenses and taxes.
When you apply for a new line of credit to buy a house, you must sign two reports: a promissory note and a home loan. Tasks and supports are the manners in which these records move between banks.
If you’re confronting dispossession, and the abandoning bank doesn’t have the best possible support and tasks, you may have a guard to the dispossession.
When a loan requests a value greater than 80% of the appraised value of the home
In the circumstances mentioned above, many people are forced to ask for more than 80% of the appraised value and face the payment of the house and the expenses that entail their purchase, furniture, appliances, etc.
In these cases, the entities request a guarantor that responds with their properties (guarantee) if the credit holder does not pay the payments. It means that you must involve family or friends in an embarrassing situation for both. Also, someone who buys a second home may be obliged to endorse the new acquisition with the first.
But some people lack previous possessions and do not have relatives or trusted people in the country that serve as guarantors, even if they are in a situation of economic solvency. This fact means that many people could not have access to the purchase of a home, with which the banks also lost an important business niche.
Mortgages without endorsement that exceed 80% of the appraised value of the home to be acquired
Therefore, entities can grant mortgages without collateral, even if it exceeds 80% of the home’s appraisal value to be acquired. They usually reach even 120% of that value.
In return, the entities will force the client to subscribe to insurance covering the non-payment of the installments. Thus, the monthly installments will be composed of three added payments: principal, interest, and insurance. This fact may hurt our future solvency level because, in exchange for not presenting guarantors, we will have to face an appreciable increase in the quotas corresponding to the amount of insurance. Therefore, the repayment terms are broad, up to 40 years, making payments more affordable and compensating for increased insurance costs. Also, prolongation in time makes the operation profitable for the entity.
But there are usually no mortgages without endorsement as generalized specific products in all entities. Instead, the cases and their particularities are studied. Even with insurance and property as collateral, banks will only grant these loans if they believe their client maintains a certain level of solvency.
For example, as a rule, mortgages are not granted whose resulting installments exceed 30% of the client’s monthly income. And they are considering other loans that may be paying (car, cards, etc.). Also, it may impose a series of conditions, such as whether the client is an official or has an indefinite contract with a medium or large company, etc. If the requirements for hiring a mortgage tend to be strict, they tend to be even more so in the case of mortgages without collateral.
In any case, banking entities usually request (not demand) a guarantor for transactions more significant than 80% of the appraised value rather than constitute a mortgage without a guarantor but insured.
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