Before granting credit, the banks ask for a guarantee. The latter allows them to protect their interests in case of financial default of the borrower. It is the same for the real estate loan, where three options of the guarantee are offered to you. How to find yourself in front of these possibilities, their advantages, and risks? Which one to choose? Here are some answers to these questions that you may ask yourself before taking out a real estate loan.
Guaranteeing a real estate loan, how does it work?
The purpose of guaranteeing a real loan is to allow the bank to protect itself in the event of stop of the borrower’s monthly payment. In other words, the bank, beneficiary of the guarantee, has the right of lien or seizure to reimburse itself on your assets. The guarantee can concern goods or persons. When it relates to property, it is classified in the category of collateral. When it concerns a person, it is put in the category of personal securities. It can also be the heritage of a third party. To have access to the best real estate loans, contact real estate credit brokers to benefit from their expertise.
Real and personal securities
The real securities group together guarantees such as the mortgage and the PPD, which weigh on the goods, whereas the personal one is rather the guarantee. In the case of a surety bond, the whole of the borrower’s assets can be seized. This is within the limits of the rules and conventions of the law. On the other hand, with absolute security, priority is given to the object of the security. Therefore, the pledged property can be seized as a priority by the beneficiary of the guarantee.
The guarantee places a large risk on the borrower’s assets. And it is not legally required to obtain a real estate loan. However, banks rarely grant this kind of loan without any guarantee. It would be for them a financial risk too big and inconsiderate. There are, therefore, surety companies that individuals can call upon to guarantee a real estate loan. These companies, subsidiaries of most banks, undertake to reimburse them if you default. The guarantee is relatively simple and very used for real estate loans.
What are the options for a home loan guarantee?
The options for guarantees of a real estate loan are the mortgage, the guarantee, and the privilege of lender of deniers. These three types of guarantees differ in their implication for the property and the borrower. In the case of a mortgage, the bank can seize and sell the real estate to pay itself back.
With the privilege of lender of funds, which applies only to the already existing goods, it can seize and sell the good to be repaid. The particularity here is that it has priority over other creditors, which is not always the case with the mortgage. The date of registration at the mortgage office determines the order of creditors in the case of a mortgage. With a surety bond, the borrower can contribute to a so-called surety company that reimburses the bank in case of problems.
What is the best choice for a real estate loan guarantee?
Each of the guarantees has a cost, and not all are equal. It is, therefore, preferable to choose the solution that best suits your economic situation and your banker’s requirements. For high loan amounts, it is better to orient yourself toward the PPD since its cost is not proportional to the property. But, in general, the guarantee is the best option of guarantee for a real estate loan. Its cost is high in proportion to the loan. It allows you to recover a portion of the contribution depending on the surety company you choose. The mortgage should only be considered when the first two options are not possible.
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