The initial decision on granting a mortgage by a bank to a person with creditworthiness is called a loan promise. Thus, it should constitute a guarantee of receiving a mortgage, on terms predetermined by the borrower. However … this is not always the case. What is a loan promise and in what situations can you receive a negative decision?
Credit promise – what is it for?
The loan promise is a written statement that is, in a way, a bank’s promise to grant a mortgage. There is one condition – the future borrower must meet all the requirements contained in the document. It can be used by entrepreneurs participating in a large tender or competition, but also by people who plan to buy real estate. This is crucial, because the purchase and sale transaction very often requires the signing of a preliminary contract and payment of a down payment, which is usually 10% of the total property.
Therefore, the promise of a loan in its simplest sense is intended to secure the buyer in terms of receiving funding. However, this is only the beginning in the whole, complicated process of applying for a mortgage.
Unknown facts from the “life” promise
The issuing of the promise document by the bank is free. For using it, unfortunately you have to pay … How much? Usually it is an expense of several hundred dollars – and therefore quite large. Interestingly, the classic statement must include the expiry date of the commitment by the banking institution. By default, it is 30 days from the date of issue of the document. However, it differs in some bank branches. And what is the real waiting time for a loan promise? You can usually get it in a few days, up to 2 weeks.
It is worth knowing that, depending on the bank, it is a document that can be considered in two ways. Some branches, in the form of a promise, define a meticulous and binding analysis of creditworthiness on the basis of which a mortgage will be allocated. However, for the others, it takes the form of “non-binding”, which is intended only to inform and make a preliminary assessment of the customer’s creditworthiness.
Credit promise and creditworthiness
The promise declaration can be made at any time of your choice. Which means it can be calculated even before you buy a specific property. In this case, it is certainly more precise and there is a small probability that the bank will not grant a loan in the previously promised amount.
In practice, it should be remembered that just applying for a mortgage is an extremely difficult procedure, during which the bank verifies not only creditworthiness, but also legal factors and the value of future investment. Thus, the promise does not give 100% certainty that the promise of a commitment will actually be fulfilled.
The bank will not always keep its word
In what cases does the promise’s declaration be refused? A key factor that can influence a change of decision is … real estate. In theory, this financial liability is allocated to the value of the investment. However, it often happens that after careful verification, the bank may discredit the property and set its own, much lower value than the original purchase price. At that time, the financial institution is not thinking of granting a loan, in the amount previously promised.
Credit decision refused – 5 steps to a happy final!
- Apply for a loan and ask for a loan decision! Most banking institutions can provide it, without having the investment documents you want to purchase,
- You will limit the risk of refusing to receive a mortgage by professional property valuation. It guarantees a reliable assessment of the value of the property,
- Make a down payment on the property with a clause that will take into account the unpleasant scenario of the refusal to grant a loan. In this case, the seller will refund the down payment without any additional costs,
- Submit 3-4 loan applications at various banks. A larger number of loan inquiries can reduce creditworthiness.
- To prevent your dream home from passing by your nose, opt for an advance payment in the form of a notary deed – but not in the form of a civil law contract. It gives the seller a chance to withdraw from the preliminary contract at any time, without incurring any consequences or costs.
Definitely a better security for the interests and possible deposit on your dream property – instead of a credit promise is a credit decision. First, you do not have to pay for it, and secondly, it is the bank’s final opinion on the allocation of financial support.