Many people consider guaranteeing a loan with a property, especially in times of crisis or when they are going through difficult economic situations, such as unemployment. These are times when money is needed more than ever and yet banks do not want to grant loans due to the lack of regular income.
What to do then, how to access credit? Can you get a mortgage with bad credit? Well, there is an option and it is through a loan with a property, or a loan with a mortgage guarantee, for which we only need -in principle- to be the owners of a property. However, this type of product carries significant risks. Do you want to know what they are, and how to access this type of credit? Keep reading to find out about everything.
What Is A Home Equity Loan?
Any entity or company that offers a loan for a large sum seek to have the maximum possible guarantees, not only that it will recover its money, but that it will also receive the specified interest in exchange. This is where the mortgage loan comes in – not to be confused with the mortgage loan, which is requested to buy a home – in which a property is used as collateral or payment guarantee.
Unlike the mortgage loan, in the loan with a property as collateral, the purpose for which the money is destined does not have to be to acquire a home, and may have any other destination; Of course, the property with which we endorse the operation must be in our name.
It is a good option if, for example, we have a garnishment order and we need to quickly access a credit to pay our debts; It is also very useful to reunify our debts, or for cases such as when we must pay inheritance and donation tax before the inheritance of a property, since we can use the inherited property itself as collateral for the loan we need.
How Much Can They Give Me If I Guarantee A Loan With My Home?
Although it is a more accessible means of credit, logically it is also limited. The maximum amount of the loan that we can request with a home equity loan is calculated based on the appraised value of the property, and if a mortgage weighs on it, the amount is reduced.
Even so, usually the financial companies that grant this type of loans do not give more than 40% or 50% of the appraised value of the property, from which the pending mortgage or any other burden that weighs on the property must be subtracted. Also, if 70-80% of the mortgage has not been paid, the loan is rarely approved.
Factors To Take Into Account In The Appraisal
There are also a series of factors to take into account in the appraisal of the property with which we will guarantee this type of loan, and which are decisive to know how much money we can have. Some of them are:
- The time that the property has: the value of the home decreases over the years, and it also influences whether it has been renovated or not.
- The location of the property is also decisive, since a property in the center or on the outskirts, or near the capital or in a province is not the same.
- The market also influences, and depending on the economic situation our property may receive a higher or lower appraisal.
Despite these limitations, it is true that this type of loan offers an easy and accessible line of credit in complicated situations – as long as we have our mortgage almost paid – since the requirements are very simple.
In general, it is only required to be of legal age and have a property of our property with no charges or with little pending mortgage. The amount of the loan, depending on the appraisal and other factors that we have already seen, usually ranges between 5,000 and 300,000 euros, to be repaid up to a maximum term of 20 years.
Furthermore, the property we offer does not have to be a home; It can also be a commercial basement or an industrial warehouse, since the important thing is its value. Depending on the financial institution in question, it can also accept other guarantees that are not real estate, such as works of art.
What are the drawbacks of using a property to guarantee a loan?
They are quick and easy loans but also with very high interest rates that can reach 20%, so they can make us get even more debt. This is so because the entity assumes a very large risk when offering the credit. The loan offered rarely exceeds 40% of the property’s appraised value, so in reality we will only have access to a limited amount of money that is not even equal to most of the property that we present as collateral.
To this we must add that in case of non-payment, the entity that granted you the loan keeps all the property, initiating a judicial process and a seizure.
In summary, guaranteeing a loan with a property is something accessible for many customer profiles who otherwise would not have access to credit; However, it is important to take good advice and carefully weigh the drawbacks, since even if it is a product to turn to in emergency situations or as a last resort, there is a very high risk of losing our home or any other property.