Loan secured by property: how it works

Has anyone heard of a loan secured by property?

What is a home equity loan?

THE secured loan A real estate loan is a type of credit that allows the customer to request higher amounts, and, as a guarantee of payment, the applicant offers a property to the bank.

You may have seen this type of borrowing in American films and series.

This happens because this credit model is very present in American culture, being a good way out for those who want to get rid of high debts, or even carry out a personal project, such as getting married, renovating a property, studying abroad, etc.

How it works the loan secured by real estate

To obtain this type of credit, one of the prerequisites is to have a property – whether residential or commercial – registered in the name of the loan applicant.

An important detail is that, throughout the loan period, the entire transaction is registered at a notary's office, but the property remains in the owner's name, thus allowing them to continue using it as they see fit – whether living there or renting it out.

After the loan installments are paid off, the property returns to the owner's name.

Because you use your property as collateral, banks understand that the risk of default with this type of credit model is lower. This means that the interest rates on this type of loan are lower—averaging approximately 1.25% per month—compared to other lines of credit currently on the market.

Who is it for?

This type of loan is recommended for those who want to obtain a higher amount, with lower interest than usual and a longer term to repay.

What are the amounts released? in the loan with property guarantee

This factor depends on several variables, such as the amount requested, the client's credit analysis, and the value of the property offered as collateral. In general, loan amounts offered range from R$1,000 to R$1,000,000 to R$2,000,000,000, depending on the applicant's circumstances and the property.

The applicant will be able to access the amount that was released during the loan application process.

Process steps

Now it's time to talk a little about the procedure itself. Because the amount released is usually higher, the process from requesting the loan to receiving it is often longer and more rigorous, but the wait is worth it.

Generally, the process is divided into the following steps:

Request: Before applying, the customer can simulate a loan directly at the agency or even through the website of the chosen company.

Credit analysis: At this stage, the institution assesses the client's financial situation and the amount requested. After this analysis, if the company concludes that the applicant will be able to afford the loan installments, the request is approved. Otherwise, the institution may deny the request.

Legal analysis and property valuation: After approval, the next step is the legal and property analysis. At this stage, the property is appraised to ensure it can be used as collateral for the loan. This assessment takes into account aspects such as property value, property type, square footage, and location, among others.

Contract signing: After completing all the steps above, the final step is to sign the paperwork and notarize everything. Only then will the loan be released.

Documentation for a loan secured by real estate

In addition to personal documents—such as ID or driver's license, CPF, proof of income and residence—the applicant must also submit certain property documents. The required documentation includes:

Property registration, if it has an independent space, present registration;
IPTU cover (with detailed and updated property measurements;
Negative declaration of condominium debts.

It is worth remembering that, depending on the internal policies of each institution, the time and stages of the process may vary slightly.

What are the advantages of this model?

Among the main advantages of the model, the ones that attract the most attention are:

Low interest: on average 1,25% per month, making it a good option for those who want to avoid the higher interest rates that are very common in other credit models.

Longer payment terms: Another advantage is the repayment. Typically, the client has a term of 60 to 180 months to repay their loan, depending on the institution.

Achieving high values: Depending on the policies adopted by the bank responsible for the loan, the applicant may be able to obtain higher amounts.

Being able to enjoy the property: when placing the order – and throughout the entire process, the owner does not need to sell or vacate the property, and can continue using it normally as they see fit.

Is there really a possibility of losing the property?

Yes.

If the customer fails to pay the installments, the bank must then attempt to recover the amount of the transaction.

However, for the institution itself, the process of repossessing a client's property ends up being very costly. Because of this, it's often the bank's last option.

Despite this, losing the property is still a risk that must be taken into account. Therefore, the client must make regular installment payments to avoid this type of inconvenience.

Is it a good business option?

Just like any other type of banking transaction, this loan model also requires careful consideration.

Despite the advantages, such as lower interest rates and longer repayment terms, it's important to consider that this is still a long-term debt. Therefore, it's up to the applicant to decide whether or not to opt for this credit option.

Conclusion

Although it is not yet a very common option among Brazilians – perhaps due to the lack of greater publicity for the service by financial institutions – this loan model has everything to be a very advantageous option for those who need a loan, but it does away with the higher – and often even abusive – interest rates of other types of loans.

Therefore, when opting for this type of loan, you should consider all aspects—both positive and negative—of the transaction. Only then will you be able to secure a good deal.

Did you like the content?

Take the opportunity to read too Credit card for self-employed people with bad credit.

Nathalia P. Silva

September 22, 2021