Many bank clients are trying to buy an apartment with a mortgage from their parents. Some want to buy the living space using maternity capital, others want to re-register ownership. When making transactions of this kind, the question of their legality arises, because even the law provides for some restrictions.
In practice, many banks are faced with fictitious paperwork, so they treat them with suspicion. How you can buy a house from your parents with a mortgage, which bank will give you a loan and under what conditions, we will tell you in our article.
Mortgages between relatives: why do banks often refuse?
Some banks, in terms of mortgage lending, immediately indicate the fact that real estate cannot be purchased from relatives with a mortgage . For example, the AHML mortgage refinancing rules contain similar prohibitory clauses.
But even if there is no such prohibition among the bank’s lending conditions, the likelihood of a refusal to formalize a mortgage transaction between close relatives is still high. This is due to the high risk of fraud.
The probability of bank refusal is especially high if the borrower plans to make an advance for an apartment using maternity capital. Such a purchase will most likely not be approved by the Pension Fund of the Russian Federation, which means that the borrower will have to make the initial payment with his own funds, which may result in arrears.
Transactions between close relatives are prohibited as part of participation in government programs designed to improve the living conditions of citizens (mortgages for employees of Russian Railways, the Ministry of Internal Affairs, etc.).
Family mortgage with state support: terms of provision
Experts recommend that those who are eligible use a family mortgage to improve their housing situation, since this program is available to all regions of the Russian Federation and does not require long years of waiting in line for subsidies. At the same time, the low interest rate on a family mortgage makes the purchase more profitable than the market value.
A preferential family mortgage requires the following conditions for provision:
— The main goal of the state when subsidizing a loan is to support families with children and stimulate the birth rate. To receive a loan on favorable terms, the second and subsequent children must be born from January 1, 2021 to December 31, 2022 inclusive.
— Parents of a disabled child can count on participation in the program, even if they have their first and only child. At the same time, the requirements for the year of birth are slightly different - the first-born can be born before 2021, but the upper limit today remains the same - December 31, 2022.
— Before applying to the bank for a preferential mortgage at a favorable rate, you will have to save up a down payment of at least 20%.
— The borrower and his children must be citizens of the Russian Federation.
Important! Experts strongly recommend going through the procedure of refinancing your existing mortgage if you qualify for a preferential family mortgage.
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How to buy an apartment from a relative with a mortgage?
The only option for a potential borrower who wants to buy a home from a loved one and is faced with the possibility of refusal to carry out a “related transaction” is to try to negotiate with the bank.
First, it is advisable to study the loan products offered by the relevant institutions, consult with employees of various banks and try to find out about the possibility of purchasing an apartment from a relative with a mortgage.
It would be a good idea to even contact a mortgage broker who can quickly analyze offers from different banks.
It is important to try to prove to the bank that the planned transaction of purchasing an apartment from a close relative with a mortgage is not carried out with the aim of circumventing the law and obtaining borrowed funds in a fraudulent way.
As the main argument for the purity of the transaction, one should express readiness to make payments to the seller-relative in non-cash form. This minimizes the risks of claims from relatives and attempts to invalidate the transaction through the court, which, in turn, reduces the risks of the creditor.
However, the bank may also impose other requirements on the borrower regarding the procedure for registering a transaction for the sale of an apartment by close relatives.
For example, some banks rightly fear that the cost of living space will be artificially inflated and the borrower will have the opportunity to spend the borrowed funds for other purposes not related to the purchase of housing.
But this risk can also be minimized if you invite the bank to evaluate the apartment being purchased by an independent expert who is accredited by the bank itself.
When trying to get mortgage financing from a bank, you should immediately inform the lender that the seller is a close relative. In any case, this will become known to the bank, but concealing this fact will lead to the fact that the potential borrower will definitely be refused and, moreover, will be blacklisted by the bank.
If you immediately inform a bank employee about the fact that the buyer and seller are related, and also explain the purpose of the upcoming mortgage transaction (for example, division of property between brothers and sisters, etc.), then the chances of its approval by the bank will increase significantly.
The third argument in favor of such a mortgage transaction will be the fact that the applicant’s relatives (especially if they are parents) who are selling the apartment do not have the only property being purchased. And it’s even better if they are registered at a different address. In this case, it is better for the potential borrower to immediately present supporting documentation to the bank employee.
When purchasing real estate with a mortgage from a close relative (parents, brothers, sisters), one nuance should be taken into account: the borrower will not be able to receive a tax deduction on the debt and interest. The Tax Code of the Russian Federation directly states that no deduction is allowed if the purchase and sale was concluded between close relatives.
The algorithm for purchasing an apartment from relatives is almost similar to the general procedure for applying for a mortgage and consists of the following steps:
- Contacting the bank and obtaining approval for a “related transaction”.
- Collection of all documents requested by the bank.
- Selecting a loan program and fulfilling all bank requirements.
- Concluding a preliminary contract for the sale of housing with the seller with the inclusion of a clause on the issuance of a deposit.
- Conducting a housing assessment.
- Making a down payment.
- Registration of insurance.
- Registration of transfer of rights and encumbrances in Rosreestr.
To obtain a mortgage between relatives, a standard package of documents is collected, including:
- application form for obtaining a mortgage;
- certificate 2-NDFL about the solvency of the borrower and from the employer with a stamp and signature;
- passport with registration mark;
- a copy of the work book;
- children's birth certificate;
- marriage document;
- papers confirming family ties.
Mortgage loan approval factors
Transactions between close people are given special attention by credit consultants and bank security services. The reason is the practice of fraudsters and unscrupulous borrowers to use the funds received for inappropriate expenses, to benefit from the transaction within the family, and to deceive the credit institution. To avoid falling under suspicion, you should:
How do you feel about mortgage loans? The only opportunity to purchase real estate 49.46% Not happy with this idea, but sooner or later you will have to buy it 23.91% It’s better to rent than to take out a mortgage 7.07% Hard labor for life 19.57% Voted: 184
- Do not hide the fact of kinship, even distant ones. At various stages of registration and registration of property, information may reach the bank and be interpreted as an attempt to deceive;
- Explain to the consultant for what purpose the mortgage loan is being taken, and the degree of relationship of the participants. The more transparent the situation, the higher the likelihood of a positive decision;
- Consider the importance of loan collateral. The presence of existing housing for the borrower significantly increases the chances of approval of a mortgage loan;
- Remember to reduce risks for the bank. In a situation where children purchase an apartment from their parents, an additional guarantee is that the older generation has additional living space in which they are registered.
- Make all payments non-cash. Good, warm relationships do not always remain between close people. Non-cash payments made through a bank serve as protection against intra-family conflicts and a guarantee of transaction transparency.
The more complete information is provided to the credit consultant without attempts to deceive, the higher the chance of getting a mortgage loan approved.
Is it possible to buy a share in an apartment with a mortgage from relatives?
Getting a mortgage for a share is quite troublesome, so most applicants are interested in other loan options for purchasing a share of an apartment.
If there is a mortgage, it will be the remaining part of the apartment. It is unlikely that it will be possible to purchase one of the shares with mortgage funds while the remaining shares will remain with other owners.
This is a huge risk for the bank, because under force majeure circumstances it will have to sell the collateral. And it’s easier to sell the whole apartment than part of it.
Banks will approve a mortgage transaction for the purchase and sale of a share of an apartment only if, in the end, the apartment will entirely belong to the borrower.
Alternative options
If you have problems with a mortgage when purchasing residential property from your parents, you can also consider the option of a consumer loan. Of course, with consumer lending, the amount of borrowed funds issued is usually smaller, and the interest is higher.
However, in some situations, obtaining a consumer loan to purchase residential real estate may be the only option. In addition, the procedure for issuing consumer loans is usually simpler than obtaining a mortgage, which allows the potential borrower to significantly reduce their time costs and avoid obstacles.
In addition, if you have difficulties obtaining a mortgage, you can try to get a mortgage or a consumer loan secured by the housing the potential borrower already owns. Many banks consider such applications much more actively, since the presence of a collateral other than real estate purchased from parents somewhat reduces the risk of the borrower not repaying the money.
Is it possible to buy a house with a mortgage from your parents?
It is more difficult to purchase a house with a mortgage than an apartment . Private houses are considered less liquid real estate. The fact that the seller is a parent will likely be an additional disadvantage for the applicant. But still, such a deal also has a chance to be formalized if the applicant presents convincing arguments, as mentioned above.
In this case, preferential government programs for improving housing conditions (mortgages for military personnel, “young families”, social mortgages from AHML, etc.) will not be available. It will also be impossible to use maternity capital funds.
Children can purchase a house with a mortgage from their parents only if this is not their only home.
Real estate requirements
To finance the purchase of an apartment or apartment under a mortgage lending program with state support, housing must be:
- •
connected to the sewer system;
- •
connected to the central heating system;
- •
connected to the water supply system;
- •
connected to the mains.
For housing in a house under construction or new buildings, the absence of interior partitions, plumbing and interior decoration is allowed. At the same time, the house itself, where the apartment or apartment is located, should not be in disrepair or on the list for major repairs with resettlement, or on the list for demolition. You can learn more about the requirements for a property for financing under the Family Mortgage program in the “Good to Know” section on the “Required Documents” - “Documents and Templates” tab.
Which banks should I contact?
In 2021, it is too early to talk about the readiness of all credit institutions to provide loans for the purchase of real estate from relatives. Most banks are not yet ready to issue mortgages between relatives.
If such a need arises, then you should contact such credit institutions as:
- VTB 24 (https://www.vtb.ru/);
- Sberbank (https://www.sberbank.ru/);
- Deltacredit (https://www.deltacredit.ru/).
The credit policy of these banks does not classify such borrowers as a separate category of mortgage applicants and does not impose more stringent requirements and lending conditions on them. In these banks, relatives can apply for a mortgage on general terms with the provision of a standard package of documents.
So, the idea that “related” mortgages are impossible in 2021 is wrong; If desired, a housing loan can be obtained from the largest and most reputable banks in the country.
Features of the registration will be non-cash payments, the impossibility of obtaining a tax deduction and the participation of relatives in preferential social housing lending programs.
Undervaluation of housing
One of the benefits of buying real estate from relatives is the opportunity to buy an apartment at a price below the market price. This practice has its pros and cons. Theoretically, it is beneficial for the bank, if the mortgage loan is not repaid, to obtain ownership of housing with a market value higher than the stated one. But in practice, those who lower the price tag are careful payers and pay funds on time so as not to lose ownership. The bank considers manipulations with housing prices as an attempt to deceive and refuse a mortgage.
Particularly greedy borrower families may underestimate the value so much that there are insufficient funds to secure the mortgage, and this will cause the loan to be disapproved. Banking organizations also have a negative attitude towards attempts to inflate the declared value of a property without objective reasons. To guarantee a positive decision on a mortgage loan, you should not try to deceive the bank. The presence of an independent expert assessment of the market price of an apartment or house will increase the confidence of those wishing to receive a loan, increasing the chances of purchase.
