Lending a large amount of money is a big risk for the bank. The borrower’s property, which is issued as collateral, helps to reduce these risks. The cost of such an object must exceed the amount of the loan so that if it is sold, the bank can get back the funds issued in debt and interest that have time to run up over the loan period.
What is collateral real estate?
In the case of a housing loan, liquid real estate is used as collateral. This can be a country house, apartment, land plot, or cottage. Creditors make certain requirements for each object.
As collateral, the bank will only take the liquid real estate, which is a short time that will be able to find a buyer. You will not be able to use as collateral an object that cannot be insured because it does not meet the requirements of insurance companies. The value of the collateral object is determined by the appraiser. This can be an employee of a financial institution that issues a mortgage or an independent expert. The bank will be able to lend the borrower an amount that does not exceed the value specified by the appraiser.
Banks ‘ collateral requirements
Each lender has its own list of requirements for real estate that will be used by the bank as collateral for the mortgage. It is worth considering the most common of them. Many banks refuse to issue wooden houses as collateral, and all because insurance companies rarely issue a policy on such real estate. They prefer to work with objects that have metal, reinforced concrete, or mixed floors.
The location of the collateral object has a serious influence on the bank’s decision. A financial organization is more likely to pledge real estate located in the Central part of the city, but it can refuse objects located on the outskirts. All financial institutions will agree to take the pledge object, which is located in the closed administrative-territorial education.
Due to the fact that insurance companies refuse to issue policies for apartments on the last and first floor of five-story block buildings, it is also impossible to use such real estate as collateral. As collateral for a mortgage, you will not be able to issue a house of a barrack or hotel type. The apartment, which is issued as a deposit, must have heating, electricity lines, water supply system, kitchen, and bathroom.
The property must be officially owned by the borrower. It should not include children who have not reached the age of majority and are legally incapacitated. In some cases, creditors require consent to use real estate as collateral, not only the owner but also all persons who are registered there.
If the technical passport of the real estate does not meet the real conditions, that is, an illegal redevelopment was carried out, the bank will not issue it as a collateral. Real estate that is on the list of objects for the demolition or is in disrepair can also not be used as collateral.