A mortgage agreement is usually valid for several years. During this time, the borrower’s situation may change. What if you want to buy another home, but the mortgage on the first one is not paid off? We will answer this question in the article.
The situations can be different: the borrower wants to sell an apartment with a valid mortgage and buy another home, or buy additional property (for example, a house or apartment for rent).
Let’s consider such a situation. The borrower has a valid mortgage for 2 million rubles, 1 million rubles remain to be repaid. But he wants to buy another apartment for 5 million rubles, and sell this one. On the other hand, there is an amount of 1 million rubles. What to choose:
- first, close the first loan with the available amount, sell housing and take on the second one with renewed vigor;
- put 1 million rubles. for a down payment on a new mortgage, wait until the first loan expires, and after the sale of the first apartment, fully or partially close the second loan.
Suppose the borrower decides to act according to the first scheme: he closes his 1 million rubles. existing loan. What does it give? First, the likelihood of a new loan being approved is higher. At the same time, before the sale of housing, own money for a down payment may not be enough. In addition, credit institutions do not favor borrowers who repay loans ahead of schedule.
You can, of course, wait for the sale of the first apartment and calmly take a mortgage on a new one. But the question arises: where to live between transactions? If the family does not have spare housing, this option will not work. As practice shows, the sale of housing can take months.
Now the second option: the borrower did not close the first loan and used the funds for the second mortgage (paid 1 million rubles as a down payment). What awaits him: strict requirements of the bank, large monthly payments on two loans, and waiting for the expiration of the first mortgage, after which the apartment can be sold.
This scheme is suitable for those whose housing loan is coming to an end. If there is still a long time before the expiration of the first contract, it is worth carefully weighing the risks and calculating the forces. Another option is to negotiate with the bank to sell an apartment in a mortgage. How likely such a scenario depends on the policy of the particular institution.
Here is a comment from a real borrower who found a way out of a similar situation: “When I had such a choice, I took a second mortgage and turned out to be right in the end. I had a mortgage apartment, but I decided to buy a second home to live in and sell the existing one. Waiting for a variant from the developer. When the option of buying a new apartment appeared, I started selling the first one – as a result, I sold it for a year. If at that time I had paid off the first mortgage and put up for sale the existing apartment, I simply might not have bought the second one because of the long sale, since there were restrictions on the down payment.
“If the potential borrower has sufficient income and timely payments on current loans, the bank will be happy to give both the second and third mortgages. At the same time, a new mortgage can be taken both in the current bank and in another. Here it is worth paying attention to the fact that different banks have different requirements for the adequacy of income and the quality of credit history.
Some banks allow you to pay on a loan no more than 40% of your available income, and some only deduct a living wage from your available income (the average per capita living wage in Moscow in 2019 was 16,260 rubles), and everything else allows you to pay on a loan.
Borrower Evaluation Criteria
What criteria are used to evaluate a borrower when considering an application for a second mortgage:
- solvency – some banks evaluate unofficial income, but more often official confirmation of earnings is required;
- credit history – it is important that there are no delinquencies not only on the current mortgage but also on previous loans;
- the number of dependents – if there are several children in the family, this increases the burden on the budget, so make sure that the living wage remains for each person after the mortgage is paid;
- the balance of payment on the first mortgage – the probability of approval is higher if less than 30% of the amount remains to be paid;
- the size of the down payment – get ready to pay from 30% (sometimes 50% is required);
- the presence of collateral that fits the conditions for issuing a new mortgage.
How to increase your chances of being approved for a second mortgage
The surest option is to offer a large down payment. As a rule, banks require ROI from 50%. Another option is to invite guarantors and co-borrowers to show a high total income.
Of course, the willingness to confirm earnings will increase the chances, sufficient to pay off two loans. We recommend applying to the bank in which the borrower is listed as a salary or at least a regular client.
The likelihood of approval of an application for a second mortgage increases the purchase of life and disability insurance for the borrower.
We recommend that you apply for both mortgages in the same bank. This will help simplify the process of approval of the submitted application. Choose another lender only if the first is disappointed or offers too high rates.
The main risk is not coping with the volume of monthly payments. Therefore, taking a second mortgage is recommended only for those borrowers who are confident in a high stable income.
There is also a risk of rejection of the application for the following reasons:
- informal income;
- delinquency on the first loan;
- too low a down payment that the borrower is willing to make.
Often, borrowers take out a second mortgage in such a way that they will pay off the first loan, quickly sell the apartment and use this money to make payments on the second loan. Do not count on a quick sale of the first apartment. The deal may be delayed. You need to rely only on the real income of the family.