If before signing the mortgage your bank asks you to leave some money in the account, don't panic. This is what we call a provision of funds and it helps financial institutions to complete paperwork and pay expenses.
What is a provision of funds
The provision of funds is money that you advance to the financial institution once it has pre-approved the mortgage, it's that simple.
This is the amount that the financial institution will need to complete and cover the procedures for granting the mortgage. In many cases, this is what is known as the “mortgage down payment” and the specific amount depends mainly on the costs of the mortgage and the purchase and sale of the apartment you want.
What is the purpose of the provision of funds?
The purpose of the provision of funds is to enable the financial institution to take care of the costs of processing the mortgage and the sale of the house without having to ask you to deposit money at every step of the way.
It is a tool that makes life easier for the client and the financial institution and speeds up the entire process of signing the mortgage loan. For you, because it frees up your time and you can get on with your life while the mortgage is being processed, and for the institution, because it does not need to wait for you to deposit the money it will need at each stage of the process.
How Mortgage Funding Works
Paying the deposit is part of the process for applying for a mortgage online or in person, it doesn't matter.
After the financial institution carries out the feasibility study, it will present its proposal to us and give you a binding offer with its mortgage. If you accept it, the entire process of processing the mortgage will begin. This is when the institution will ask you for the provision of funds that it estimates it needs.
The entity will use the money and at the end of the process, when you sign the mortgage, it will make a settlement of the provision of funds, which is a summary of the expenses of signing the mortgage that have been borne by that provision that you advanced at the time.
The amount of this provision is not random and is directly related to the costs of signing the mortgage, which is why it is also called “mortgage down payment”.
What are the costs of signing a mortgage now?
The costs of signing a mortgage have changed over time. Since the 2019 Mortgage Law, they have been greatly reduced and now the financial institution must bear the majority of the cost.
As a client, you will be responsible for the appraisal costs of the property and the opening fee, which will also include the loan study costs, as well as the copy of the simple registry note .
For its part, the financial institution must pay the notary, registration, agency and Stamp Duty along with its copy of the deed.
How much is the fund that you will have to advance?
The amount of the provision of funds is linked to the expenses that you will have to assume as a mortgage holder and is around 10% of the value of the property, although this figure may vary depending on the financial institution.
This fund does not include the percentage of the home purchase that is not financed by a mortgage. For example, if you take out a mortgage for 80% of the home, that 20% is not included in the funding provision, although you should take it into account.
Will I get my funding refunded?
Yes. At the end of the entire process, a settlement of funds is carried out in which the financial institution calculates how much it has spent and returns the difference between the mortgage funding it requested from you and what it has actually used.
This is how the provision of funds in a mortgage loan works and why you have to advance money when you apply for the mortgage. How much you end up paying will depend on the mortgage you apply for and what expenses the entity assumes beyond those that legally correspond to it.