Sometimes people have to borrow and mortgage to provide some financial needs for which there is no money and to solve financial crises. Real estate is one of the most important forms of assets that can be invested to solve financial crises through a mortgage.
In this article, we discuss information about the concept of mortgage, its details, and the difference between it and real estate financing.
What is a mortgage?
It is an agreement between the lender and the owner of the property to receive a certain amount of money in exchange for mortgaging the property as security for the debt, which may be in exchange for fixed or variable interest.
The payment of the mortgage is in installments over a long time, according to the terms of the mortgage contract. The mortgage contract restricts the property owner’s freedom of action in the mortgaged property in the lenders’ favor.
Does real estate valuation play a role in the mortgage process?
Real estate valuation plays an important role in the mortgage process, as it determines the value of the property to be mortgaged. Financial organizations require a report on the current value of the property before giving a mortgage loan, to ensure that the value of the property is sufficient to cover the loan amount in case the borrower defaults on the payments, as well as to determine the payment amounts and repayment period.
Here’s a more detailed explanation of its role:
- Determining the value:
The surveyor visits the property, notes the most important information about the property, and provides it to the valuer to determine its fair market value. This is done by looking at factors such as the property’s location, size, general condition, and features, as well as analyzing similar sales in the area.
- Determine the maximum loan amount:
A lender will usually not agree to lend more than a certain percentage (often 80-90%) of the market value of the real estate as determined by the valuation. This ensures that if the borrower defaults on the loan, the lender can recover its money by selling the property.
- Effect on the loan conditions:
The result of a real estate valuation can affect other mortgage loan requirements, including the interest rate. For example, if the valuation is lower than the approved buying price, the borrower may have to pay the difference in cash or negotiate a lower price with the seller.
What is the difference between mortgage value and market value?
Mortgage value is the value that a valuer estimates for the property being mortgaged and takes care of price changes in the market.
According to international valuation standards, the market value of real estate reflects the price it can achieve under normal market conditions.
What is the mortgage system in Saudi Arabia?
The details of the mortgage system are different from the interest rate, the amount of the deposit, and the duration of the financing depending on the entity that finances the mortgage.
In the following, we explain the conditions and features of the mortgage system in Al Rajhi Bank, one of aain’s largest partners in real estate valuation.
What are the conditions and required documents for a mortgage at Al Rajhi Bank?
- Present the salary transfer letter if it is transferred through Al Rajhi Bank.
- Presenting a clear copy of the deed.
- Disclosure of personal obligations.
- Presenting the national ID card.
- Clarify the location of the property.
- The applicant must be at least 18 years old.
- The duration of service mustn’t be less than 6 months.
- Monthly salary starting from 7,000 SAR for salary transfer customers and 10,000 SAR for customers without salary transfer.
- Fill out a mortgage application form.
The advantages of a mortgage at Al Rajhi Bank?
- Financing up to 25 years.
- Sharia-compliant financing process.
- Financing up to 5 million SAR.
- Financing is allowed up to 70 years old.
- Competitive and stable profit margin
- Flexibility in financing options
- Financing in accredited and non-accredited workplaces
- The possibility of obtaining a flexible installment feature
- Obtaining financing approval quickly and in record time\
- Grace duration of up to 3 months
- The possibility of solidarity for customers who do not benefit from the support of the Real Estate Development Fund
What is the difference between mortgage and real estate financing?
The similarity between financing and mortgages sometimes confuses and we now explain the most important differences between the two terms.
- The only similarity between finance and mortgage is that borrowers make agreed-upon installment payments, and in both cases, the property serves as collateral for the loan.
But the differences are as follows:
- A mortgage is to buy a home, while a finance loan allows the borrower to use the money for any purpose, such as paying off debts.
- The terms of finance loans are stricter than mortgage loans because lenders want to make sure that the borrower can repay the loan.
In conclusion, it should be noted that a mortgage is one of the most effective tools for obtaining liquidity in times of need to buy a home or for other purposes. We’ve outlined the most important details about mortgages to help you make an informed decision.