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Choose between providing personal or real guarantees to support a mortgage can avoid surprises when to sell a property.
During the last decade has seen a boom in the sale of housing. The mortgage loan has been, in most cases, the instrument used for financing the acquisition of a property and, in many situations, buyers need a financial support guaranteeing payment of all and each of the shares of mortgage credit.
The figure of the guarantor becomes very important and it became almost imperative for young people, workers with small payrolls, mortgage applicants in excess of 80% of the valuation of the floor or people without a steady job. Many of those who, in turn, signed as guarantors of their relatives or friends may now wonder whether to sell their property or whether, on the contrary, their status as guarantors of a loan of not holding them from freely available of their heritage. The choice between providing personal or real guarantees to support a mortgage may be the key to being able to sell property.
Personal guarantee
Often the figure is often confused with that of guarantor “no debtor mortgagee, so it is important to differentiate the two terms and learn what each means before making a decision to support a mortgage.
The guarantor meets all present and future heritage of debt owed by the holder of the mortgage. That is, personally guarantees that the borrower will meet the payment of contributions, but he does a particular good. It is not uncommon to hear conversations in which ensures that parents have supported their son “to the floor,” but these claims are not entirely correct, which I support with all its assets: its payroll, your checking account, your home. In the event that the owner does not pay the bills, the bank can go directly against the assets of the guarantor.
But not having a specific asset that has served as a guarantee of payment, the guarantor may freely sell its assets and dispose of it in a way it deems most appropriate, it will continue to respond to the new goods. So if you want to sell their home can do so freely, as there is no load on it specifically. That yes, the guarantor’s reduced ability to borrow in the future so if you need a consumer credit or mortgage will not be so easy to get except to respond to your estate before any debts of a third.
If the future guarantor, before backing the borrower, provided that at one point may have to sell your house to buy a new one, by geographical mobility needs or any other reason, it is best to choose the option to use the personal guarantee, because with it has more leeway when it comes to managing their assets.
Collateral
The situation is quite different when the guarantee is used to support the purchase of another house is actually consists of tangible assets and not personal. In this case, the guarantor provides the security for the mortgage payment a specific property and its liability is exhausted with her. It endangers all present and future wealth but only a specific asset such as a building. It is one of the options used when the guarantor does not want to risk all their properties, preferring to have limited liability.
With this kind of guarantee the following possibilities arise:
- That the property used to secure the payment of the mortgage owned by the borrower, ie the person who requests and receives the money to purchase a new home.
- That person uses your home to secure payment of fees by a third party. The latter is the case the mortgagee is not liable, the person without holding the credit puts his own property as collateral for the applicant being granted a mortgage. If given the fact that the borrower does not pay dues on time or fails to definitely pay the bills, the debtor does not respond with mortgagee your home and to the limit has been established. For example, if the bank grants a mortgage to a couple for 80% of the value of an apartment and you need is a hundred percent, parents, other relatives or friends, are a mortgage for 20% value on a property, so that their liability is exhausted by this percentage if the owner does not pay. Thus, only responsible to the extent that the property is mortgaged.
- To secure a debt with a particular property, in this case with a house, the property must be registered in the Land Registry in the name of the person who will use the apartment as collateral. Usually it should be the sole owner or agree with the other owners to put the house up as collateral for payment of a mortgage. Banks are also asking that the property is free of other charges for housing may be used as collateral. Once the guarantor has a mortgage on your property, this charge is reflected in the property registry. As the guarantor of future borrowing capacity is reduced.
- What happens then when the mortgagee debtor not want to sell the property? Legally you can, but it weighs on an obligation and if someone wanted to purchase property you would charge included. Since these data appear in the Property Registry, it is very difficult for the buyer agrees to take shelter in these conditions, so that it is customary to call for debt cancellation. If more and more difficult to sell a home, when it weighs a mortgage on the operation may become impossible.
Increasingly, citizens need a guarantee that the bank granted a mortgage. Rising home prices, rising household indebtedness have meant that delinquency rates begin to skyrocket. This has contributed to tighter conditions for banks and savings give the desired mortgage, so they have a guarantor has become an essential element for accessing a home-ownership. In most cases the parents who respond to their children, but also resorts to the brothers and close friends. In any case, the guarantor must know the risks of such altruistic decision, because in case of breach of contract or loan default by the owner and respond in like manner as the debtor.
The endorsement is an additional guarantee required by the financial institution when, after making an economic study, believes the person who requested the mortgage is at risk of failing to meet the payment of dues. The bank usually ask for a guarantee if the customer has no payroll, although their incomes are high, or where the salary comes from a temporary contract. It is pointless for the applicant to ensure that it will soon be a worker with permanent contract and that its instability is transient because the entity will not risk. At other times, the customer has high income but can not justify its source-work made “black”, without invoice, and they are reflected in the payroll, so the endorsement is also required. Another case that requires an additional warranty occurs when a credit application is over 80% of the valuation of the property or when the person requesting the money has an older, according to the bank to meet all quotas. Furthermore, institutions are very sensitive to the applicant’s credit history. If it appears in the list of defaulters or in the past has left many unpaid debts, the situation is complicated. With all these requirements, most people need a guarantee if you want to buy a home.
Taking Responsibility
Here comes into play is where the guarantor is the person who voluntarily ensure compliance with the financial obligations of the holder and thus assumes responsibility for payment if the guaranteed fails to address their debt. Usually called the sureties have a fixed salary, a healthy current account or hold property.
Although sometimes they are siblings or friends who act as guarantors, in most cases the parents who support their children so that they can emancipate themselves. Paradoxically, this endorsement makes young people remain dependent on their parents even when they achieved their desired housing. Although often is the only way that the applicant must obtain the mortgage value the benefits and disadvantages that entails being guarantor and take into account that there are many risks involved in making this selfless decision. It is important to know that in case of breach of contract or loan default by the owner, the guarantor and respond in like manner as the debtor, so they will incur not only the unpaid assessed contributions but also the delays, insurance or legal costs if any.
Tips for the guarantor
The future guarantor should consider whether you really need their support or if there are other alternatives for buyers, like giving yourself time to get a payroll more stable, more solid savings or a decline in housing prices. Also there is the possibility of buying a cheaper apartment or starting on this adventure by renting a house with option to buy.
The guarantor has to take into account your current financial situation and their expectations for the future. In making the decision must weigh their own needs and those of other relatives who may need their help after a while. When endorsing a son or a friend sometimes do not take into account that the priorities may change and the guarantor may need outside financing that will be difficult to achieve.
If it is determined to endorse, the bank should agree with the best conditions for those who support the mortgage. Whenever possible, it should explicitly sign that the guarantor will be informed of any delay in the payment of mortgage payments for a small non-payment does not result in a seizure of their property. While this is to be presumed and guarantor trust the borrower never hurts to put in writing. It is also important to ask to be informed of any changes in loan terms.
Banks usually enter the compensation clause of debts and credits that allows the entity to pay his debt the borrower taking deposit the money directly from the guarantor. To the extent possible, should reject this charge, even if the bank does not always allow. Nor should sign the “express waiver of the benefit of exclusion and division order” that gives the bank the possibility of seizing the guarantor that is more accessible, where there is more.
In general, it is essential to read carefully all the clauses of the contract and ask what is not understood to workers of the bank as to any qualified adviser.
The risks of being guarantor
The guarantor supports the holder personally and can sell, if desired, its assets and properties will continue to provide security because the new assets. However, even when it comes to pay anything, these assets are compromised and may reduce the capacity of guarantor to access funding if needed in the future. That is, if you want to buy another house you can sell it but will be harder to ask for a mortgage with a monthly figure as high if guarantor of others.
The guarantor must know that if your estate is large, can serve as collateral to many, many as the bank deems appropriate. But in the case that its assets, your personal checking or payroll are more modest, their ability to endorse will be reduced. Is a factor to consider in the case of a father or a mother with several children. It can support the situation where one of them involves not being able to do the same with the rest, which can become a source of family conflict.
Often believe that the guarantor is only liable for the debt when the bank has failed to get the money from the mortgage holder, but this is not always so. If no payments have been made in a timely fashion, the lender can proceed to collect from the guarantor instead of seizing the borrower, but it has cash to pay what you owe. Although I would expect the bank to remain in first place with the mortgaged property, it need not do so and is entitled to garnish, if you prefer, the assets of the guarantor.
It is also likely that the bank ask the guarantor to have a deposit in the body and forces him to keep a certain amount so that if the mortgage holder defaults, the bank can automatically pay off debt money from the person who has backed the loan.
Also often thought that if there are multiple guarantors, all respond equally, and the debt is divided equally among them. In the case of a couple who ask for a mortgage and have the support of parents and in-laws, that is four people, one may think that every one of them, or each partner responds with equal assets. This is not true, as the guarantor bank charges which it considers more accessible, the more money you have or the one whose assets are easier or more interesting to attach the entity. In this circumstance in which the guarantors are parents or in-laws can be given another situation even more complicated, and it occurs separation from partner and holder of the mortgage guarantors have to deal with the debt of his former son – or daughter. Many times mortgages 30, 40 or 50 years are more durable than a marriage.
Guarantors are not bank any information on compliance with payment obligations unless expressly established in the contract and the mortgage holder has consented. If not, you may have the first news of default of payment is a legal notification.
Unpaid mortgage
What happens when the owner does not pay? Typically occurs where the first default of payment of the mortgage, the bank will contact the borrower because it can be a mistake or an oversight. If not, and still owe the customer deadlines are charged interest for late payment can also be borne by the guarantor. Where there is a real economic problem that precludes the payment of money by the owner, it is possible to extend the period for repayment of credit provided the bank and the holder agree. This would reduce the money to pay for each share but would increase the total because the longer it takes to repay the loan plus interest must be paid. In case this is not possible, the bank initiated a lawsuit against the borrower and guarantors, which, if accepted, could lead to the seizure of the mortgaged property or money, payroll, or both goods and property holder and the guarantor. Ultimately, these properties can be auctioned to cover the debt.
When a person who has endorsed the claim had been obliged to meet the payment of money owed is entitled to demand payment the borrower and thus became the holder of the loan creditor. If for any reason the debtor could not pay the amount asked the guarantor, it may require the sale of the mortgaged floor to collect the endorsement.
The guarantor also will be for the duration of the mortgage, unless pacte a given period or that the loan is amortized by an amount, and responds with all present and future heritage. For this reason, be cautious and take into account that conditions today are not the same as they will in a few years. Be guarantor for several decades is a decision that deserves to be pondered, weighed and measured in all its aspects and consequences.
In the last year the supply and demand of homes for rent with option to buy is greatly increase. In regard to the application, the interest in this type of car among its users has increased 14 times in the past year. On the supply side, notes that most advertisements of this type of hire-purchase are promotions of new work, since this way the developers are trying to output the housing stock and avoid the current crisis.
The rise of this form of rent is explained because it allows landlords and tenants overcome the crisis in the more advantageous. Although there are different ways of implementing the scheme for rent, landlord and tenant generally agreed on the terms and sales price from the start, and rental fees are paid by the tenant on account of the final price of housing.
The hire-purchase provides, first, that the owner of the house, can bring to market a property which, under the current circumstances, there would be very difficult to sell. Secondly, does the tenant have the same perception that if you buy a home: to be making an investment. Moreover, given the current difficulties in obtaining credit or financing, this route provides access to housing because it is not necessary to enter into a mortgage immediately.