One of the main obstacles when buying a home is raising enough money to cover the down payment and taxes. Most financial institutions require the buyer to contribute 20% of the purchase price or appraisal value if the home is a primary residence, and 30% if it's a second home. In addition, additional taxes ranging from 6% to 10% must be considered.
For many, this represents a significant barrier. However, there are alternatives, such as a double mortgage, that can facilitate full financing of the property without the need for this initial outlay.
What is double mortgage guarantee?
A double mortgage guarantee is a financial option that allows you to access full financing for your property without the need for an initial down payment, always subject to the buyer's creditworthiness.
This option is based on using two properties as collateral: one is the home you wish to purchase, and the other is an additional property you can offer, which generally must be free of encumbrances.
How does double mortgage guarantee work?
The process is simple. By presenting two properties as collateral, the bank may consider offering you a loan to finance a higher percentage than usual of the value of the home you want to buy. The first property will be the one you acquire and will secure 80% of the loan, and the second can be any other property you own or that a family member helps you with.
It is important to note that the double guarantee loan can be divisible or indivisible:
- In the first case, once you have repaid the amount secured by the additional home (approximately 20% of the capital), you can request cancellation of the mortgage on it. This means that from that moment on, the second home would no longer serve as collateral for the loan.
- In the second case, even if you have paid off part of the loan for one of the properties, you will not be able to release that property from the mortgage until the loan is fully paid off.
Advantages of double mortgage guarantee
- Possibility of accessing up to 100% financing: This option eliminates the need to resort to savings to cover 20% or 30% of the down payment, subject to creditworthiness and risk assessment by the institution.
- You don't lose your capital: You keep your liquidity intact, which allows you to use your resources for other needs or investments.
- Possibility of refinancing: If you have a mortgage on the additional property, it is possible to refinance it to accommodate the new transaction.
Disadvantages of double mortgage guarantee
- Increased costs: This type of mortgage usually involves some additional expenses, such as the appraisal of the property you're using as collateral and the costs associated with canceling the mortgage when you finish paying off the loan. Instead of having to do this on one property, you'll have to do it on two.
- Not just any property can be used as a second mortgage: Financial institutions tend to be strict when evaluating properties that can be used as additional collateral. The property offered must be free of encumbrances and suitable in terms of location and value.
- Higher risk: By offering two properties as collateral, the risk in case of default is considerably higher. If you can't pay the debt, both the home you purchased and the property you used as collateral could be foreclosed.
- Loan-to-Value (LTV) Limitation: Institutions typically operate within a financing range that generally does not exceed 70% or 80% of the appraised value of both properties combined. This can limit access to total financing if the combined debt exceeds these values.
Aspects to take into account
If you decide to opt for a double mortgage, it's essential to consider several factors. In particular, this solution can be very suitable in cases where you don't have enough savings for a down payment, but you have additional properties you can offer as collateral.
In these cases, UCI may be able to offer you financing options tailored to your profile, as it specializes in personalized equity-based mortgages. Some key considerations include:
- Evaluate the value of additional property: Make sure the property you will use as collateral is of sufficient value and free of liens.
- Impact on your assets: It's important to consider how this financing affects your assets, since putting up two properties as collateral increases the risk.
- Customized terms: Each bank has its own requirements for accepting this financing option. At UCI, we can offer you options with terms tailored to your financial situation, maximizing your chances of accessing comprehensive financing.
Conclusion: Is a double mortgage guarantee the right option for you?
A double mortgage guarantee can be an excellent solution if you don't have the savings necessary to cover the down payment on the home you want to purchase.
We recommend that you consult with a financial expert to help you assess whether this option is best for your profile. If you'd like to learn more or request a personalized consultation, please don't hesitate to contact us.