Loan-to-value is the ratio between the appraised value of the property and the value of the guarantee that is given to the bank. It corresponds, then, to the percentage of financing that is actually granted by financial institutions. The evaluation of real estate is, as a rule, made by the bank, and may or may not correspond to the market value of the housing. Those who intend to buy a home without initial entry – or even if they prefer to give some amount initially – must give housing as a mortgage guarantee, as a rule. This means that in case of default the client runs the risk of losing the housing to the bank and the bank will later sell it or auction it to try to recover part or all of the investment previously made.
The valuation value of the property is relevant because it will determine the amount of the initial payment to be paid by the client. If the appraised value is less than the market value of the house, then the client must give an initial entry. On the other hand, if these two values are equal, then the loan-to-value is 100% and it may be possible to obtain a financing without entry. In case the property is valued above its market value, then the probability of obtaining a 100% housing finance loan is very high. Imagining that you want to buy 100% financed apartments whose market price is 80,000 euros and the financial institution rates them at 100,000 euros, the typical 80% of the financing (the percentage that banks normally finance) corresponds to the total amount of the House. However, be aware that it is difficult for a financial institution to evaluate a home above its market value, as the bank itself loses money in doing so.
The initial payable to the bank is directly related to the loan-to-value , insofar as the latter will dictate how much the consumer will have to pay. So, assuming that the loan-to-value is 80%, the client must pay 20%. In the case of housing finance 100 financing, it is not necessary to give initial entry, so the loan-to-value corresponds to 100%. Here, the risk of lending money is higher for the bank and therefore, it is more difficult to obtain financing without initial entry. If, on the other hand, the client gives a certain amount of initial entry, then it will be easier for the financial entity to recover the money financed, since it did not have to finance the total housing.
Yes, but do not assign it to all customers. When granting housing finance 100 financing, financial institutions are taking a greater risk, ie the probability of default by the client is higher as the value of the loan and hence the total cost of credit will be higher. Thus, banks are more selective in choosing customers who intend to buy a home without initial entry. One reason banks attribute this type of financing is whether the customer buys the property at the bank or not. If the house is from the bank, then you can be able to buy this type of real estate from the bank with 100% financing. Therefore, it is possible that the bank in which you intend to take out your home equity loan has this option, but you should be aware of whether or not you are eligible to do so.
Normally, banks offer this solution of having access to houses with 100% financing if they acquire real estate belonging to the portfolio of the institution. For various reasons, the banks have been acquiring several properties, which they have in the portfolio. In this sense, and to seek to monetize these assets, they usually give attractive conditions to those who seek to acquire them. Hence, we often see these properties with 100% financing in the offers of different financial entities. But be careful: if, for example, you see one of these properties belonging to, say, Santander, then you can only access the housing loan with 100% financing at Santander. Another bank, of course, will not.
There are clients and real estate more likely to have a financing without entry.
It is necessary to demonstrate to banks that it has the financial capacity to bear the burdens associated with a housing finance 100 loan. In order to buy a home without entry, it is necessary, first of all, that your effort rate – the percentage of income that is used for credit expenses – does not exceed 33%. The higher your effort rate, the harder it will be to pay monthly installments and this is not a good sign for the bank.
Financial institutions have homes in their possession – often due to non-performing loans from other customers – and, in order to recover part of the value invested in these properties, they sell them at lower prices and with unique conditions. That is why, in their real estate offers, they offer many houses with 100% financing. These conditions include benefits on the spread and the interest rate, exemption from the payment of initial commissions and financing without initial entry. In addition, it is still possible to request capital shortage and have a longer payment term. Banks usually also have options for the purchase of construction land in which they provide 100% financing.
Another relevant aspect for the banking entities is the Consumer Credit Responsibilities Map. That is, if you have never had problems with your previous loans – such as non-payment of monthly installments – you will be seen as a good potential customer.
Since the 100 housing finance loan has a higher risk level for financial institutions, these are more selective in designing this type of loan without initial entry. As such, they give preference to younger consumers, since they have more longevity to pay for finance without entry, and who have good financial and professional perspectives.
The main advantages of buying a home without an initial entry are that there is no need to give a certain amount at the beginning and as such this amount can be used to pay other expenses inherent in this process, such as the IMT Real Estate Investments). In the case of obtaining a financing without entrance derived from the acquisition of a property of the bank, the advantages go beyond buying house without entrance: it can still have a bonus in the spread , benefit from the extension of the term of payment and, of course, a price of the lowest housing. On the other hand, less positive points account for the higher default risk, which often leads banks to offer higher rates. In this way, also the total cost of the financing and, consequently, the monthly installments will be higher. This leads to a greater weight in the personal finances of the household and greater difficulty in managing the budget. The acquisition of real estate of the bank, however, also has some negative aspects, namely the obligation to restrict itself to the houses made available by the same, and the offer is also lower than the market. You can always look for alternative financing of homes for sale that do not go through exactly 100% credit.