How to Obtain a Loan That Surpasses the Property's Worth

How to Acquire a Home Loan Exceeding the Property's Value

Banks seldom offer mortgages surpassing the property's buying price. Yet, in certain scenarios, this could be viable, particularly if extra finances are necessary for repairs or consolidating other debts. It's crucial to note that banks typically don't greenlight funding surpassing 80% of the property's value, but exceptions exist. What steps should you take if a larger sum is needed?

How to Secure a High-Value Mortgage

Occasionally, when acquiring a property, a sum exceeding its market worth might be required. This could be due to repair needs, realtor or notary fees, or settling other financial obligations. Nevertheless, such requests are seldom granted by banks, and meeting specific criteria is vital to obtain such a loan.

When Can a Mortgage Exceeding 80% of Property Value Be Attainable?

Before approving a mortgage, banks assess the Loan to Value (LTV) ratio, indicating the loan amount in relation to the property's value. Generally, banks refrain from granting mortgages exceeding 80% of the property's market value. For instance, if a house costs 200,000 euros, the maximum loan amount will be 160,000 euros.

This restriction aligns with the Interministerial Committee on Credit and Savings (CICR) regulation dated 22 April 1995, advising not to exceed 80% when offering real estate mortgages. Nonetheless, this rule isn't obligatory, and under justified circumstances, banks may grant mortgages exceeding 80%, sometimes even up to 100%.

Prerequisites for Acquiring a Mortgage Surpassing Property Value

While obtaining a mortgage exceeding the property's value is theoretically possible, it necessitates fulfilling various conditions. Initially, the bank will verify standard criteria like property valuation and the borrower's financial standing. Subsequently, the bank must confirm valid reasons for increasing the loan amount.

Such reasons may encompass:

• the necessity for extra funds for real estate repairs or upgrades;
• the intention to incorporate realtor, notary, or other purchase-related expenses into the loan;
• the need to settle other debts or loans alongside obtaining a mortgage.

These reasons must be substantiated and outlined in the mortgage agreement. For example, repair estimates or contracts with contractors should be presented to justify the requirement for a higher sum.

Supplementary Assurances and Risks of a Mortgage Exceeding Property Value

Securing a mortgage surpassing the property's value involves particular risks and mandates additional assurances for the bank. Banks might tighten loan terms and request additional protective measures.

Added Bank Assurances

As loan repayment risk heightens, the bank might demand extra assurances, such as:

• acquiring additional insurance for a sum exceeding the property's value;
• involving guarantors capable of repaying the debt if the primary borrower defaults;
• registering a second mortgage on another property to secure extra funds.

Due to escalated risks and prerequisites, banks infrequently consent to such transactions, and the approval process could be more intricate.

Tax Audit Risks

Individuals securing a mortgage surpassing the property's value might face additional tax audits. Tax authorities could suspect overvaluation of the property to secure a larger loan, potentially leading to investigations and legal repercussions like fraud accusations or falsified information in official documents.

Alternative Approaches to Secure Additional Funds

Instead of opting for a mortgage exceeding the property's value, exploring alternative financing avenues might be beneficial. Some banks offer specialized loan products bundling property purchase with requisite expenses:

• The "purchase and renovation" mortgage covers not just the property cost but also renovation expenses;
• A purchase and liquidity mortgage provides extra funds for various purchase-related costs.

In the former scenario, the loan isn't disbursed in a lump sum but in stages as work progresses, aiding in monitoring implementation. In the latter case, an additional property is often required as collateral.

Hence, meticulous preparation, expense confirmation, and awareness of tax audit risks and added bank obligations are crucial when seeking a substantial loan amount.