As we know, a home loan is a kind of mortgage, meaning you need real estate collateral. The property secured as collateral will be a guarantee that the bank will get back the loan. This reduces the risk to the bank, which is also beneficial to customers, as mortgage rates are lower than personal loans. However, the type of real estate you want to include in the loan is very important, as banks lend differently to different grades of real estate. But, what type of real estate can a loan cover? It turns out below!
Only legal, privately owned, litigated, unencumbered litigation, encumbered and privately owned real estate in Hungary may be used as collateral. The real estate offered as collateral for the mortgage loan must be suitable for residential purposes:
- There is a working bath and toilet.
- It has a kitchen and a water supply.
- There is a window in the room.
- It has constant heating.
Credit institutions do not even take into account properties that meet the above criteria in determining the amount of real estate collateral, ie they lend at different percentages of their estimated market value. The location of the property (county, size of settlement, district), the condition, quality, age and immediate environment (street, staircase) of the property are also relevant for the valuation.
From the banks’ point of view, the classification on the property ownership sheet is relevant.
It often depends on whether the building can be covered. In many cases the house seems to look like a residential property at first glance, but its classification is different, so its collateral value has deteriorated. Credit institutions prefer first-rate, trouble-free credit agreements, so they get the unique treatment of real estate that is difficult to estimate.
What Type of Real Estate Can a Loan Cover?
- Real Estate on the Design Table: If the buyer and the investor agree on a staggered payment, usually the bank that finances the project itself will only lend. If the buyer and the investor agree that the excess is to be settled after the building has been completed, then several banks are willing to lend.
- Residential Grade Property: The easiest to lend.
- Non-Residential Vacation Rentals : They can be loaned if they are at least comfortable (they have constant heating, hot and cold water and a bathroom).
- Flooded property: Usually occurring on holiday homes, in addition to the comfort of these buildings, the owner also has to insure against flood damage.
- Farm buildings taken out on agricultural land, or dwellings and yards outside: If a house appears close to or almost integrated into the settlement, its financial availability may be lower.
- Farm: The amount of credit granted may be lower than the value of the transaction.
- Adobe house: Smaller villages have mixed masonry (brick + adobe) houses. It is possible to find a bank that has no structural constraints, so this type of real estate can be lent.
- Business premises: Not all financial institutions accept this type of property as collateral. In the case of mixed-use real estate, that is, the property has both a residential and a business function, banks lend when the building’s living space is larger than the business.
- Garage: Not individually accepted as collateral. However, if it is included with a residential property, it can be borrowed. More importantly, the garage must have its own locale number.