Real estate credit negotiations are very popular in Brazil. After all, buying a home is the great dream of most of the population. In addition, many people seek financing to invest in real estate and earn passive income.
Regardless of your goals, it is very important to be aware of the financing options to know which is the most advantageous. Thus, it is possible to save and faceless bureaucracy, depending on your choice.
Want to know how to decide? So, check out the various mortgage loan alternatives available on the market below and learn more about how each one works!
How does real estate finance work?
Without a doubt, one of the best-known operations in Brazil is real estate financing. It consists of taking credit with the bank to purchase a property. It is basically a loan, but with the specific purpose of applying the money in the real estate sector.
In general, the financing depends on direct negotiation with the bank, which proposes the details according to its analysis of the buyer’s profile. Therefore, the interest rate, the down payment, the number of installments, etc. are defined.
It’s a good idea to research the conditions at various banking institutions to find the one that offers differentials that you value. The method of payment can be facilitated or not, depending on the security the bank feels in relation to the risk of default.
Anyway, there is a guarantee: the property itself. It will be registered in the bank’s name until the financing is fully paid off. Then, if there is any problem with the payment, he can apply for possession of the property.
In summary, in real estate financing, the property is purchased by the bank. Afterward, the client is responsible for paying the agreed installments until he is able to pay the amount due and can change the property registration to his name. In the meantime, he can normally live in the property.
What are the types of financing?
There is some different information regarding financing. They can be of different types. Therefore, those who want to obtain mortgages with banks must know the particularities of each one.
Check it out below!
The PRICE system is characterized by having fixed installments, but with decreasing interest and increasing amortization. This means that the consumer will always pay the same amount, but there will be different interest and debt repayment installments.
Over time, you will pay less interest and more on the debt itself, that is, the value of the property. In addition to this relationship, payments can also be adjusted according to the period’s inflation. The Referential Rate can be used for the calculation.
constant amortization system
Unlike the Price system, the Constant Amortization System (SAC) works by reducing the value of installments in the long run. The reduction happens because there is a variation in interest, which decreases over time, due to the amortization of the debt.
Thus, the first installments are higher. As the months and years go by, the debt is being paid and the interest goes down. Therefore, the last installments have a lower value.
Increasing amortization system
In addition to the two types you just saw, there is a means of financing that mixes particularities of both the Price and SAC systems. Sacre represents an increasing amortization system.
The logic is as follows: the installments increase for a while, that is, the price to be paid for the installments increases, until it reaches a specific point and, from then on, it decreases by reducing the interest.
Housing finance system
Not all real estate financing depends on the decisions the bank makes freely. In Brazil, the Federal Government presents some subsidies for those who intend to buy a property using real estate credit.
The Housing Finance System (SFH) uses guarantees from the Brazilian System of Savings and Loans and also from the Employment Compensation Fund (FGTS). To be included in the program, it is necessary to follow the determinations regarding the value of the property and the term of the debt.
My home, my life
Finally, one more type of mortgage loan is a well-known Federal Government program. Created in 2009, the Minha Casa Minha Vida program aims to democratize access to credit for the purchase of a property.
It is aimed at low-income families and is organized in some salary ranges. Financing conditions are facilitated, for example, by increasing the percentage of credit that can be financed and by reducing interest rates.
How does the real estate consortium work?
So far, you’ve seen general information about one of the most common types of mortgage loans in Brazil: financing. Another possibility that is much sought after by Brazilians is the real estate consortium.
The consortium has some significant differences from the previous option. First, it is not a question of borrowing from an institution. It works as a form of a collaborative economy.
The idea of the consortium is to bring together several people interested in purchasing a good. They are then organized into a group and pay installments related to the purchase. Each month, the money paid by everyone can be used to reward some participants.
How is the purchase of the good?
Knowing this modality better, you can see the main difference in relation to financing: the consortium member does not receive a credit to acquire their property immediately. The purchase can only be made when it is contemplated.
Contemplation can take place in three ways: with the settlement of all payments, with drawings held frequently and with the offer of a bid. The bid is an amount that the customer offers to anticipate installments.
It is up to the consortium managing company to coordinate the bid proposals received and select the largest one to be considered each month. The eligible participant receives his letter of credit and, thus, can acquire the property.
Credit can also be used for other demands related to a property, such as the purchase of land or the construction of the property. The consortium installments, of course, must continue to be paid normally until the settlement.
What are the advantages of the consortium?
As the consortium requires a longer period of payment of the installments until receiving the credit and buying the property, many people ask themselves: why opt for it, and not for a loan?
One of the consumer’s advantages when choosing a consortium is the absence of an interest rate, which can make it cheaper than other credit options. As it is not a loan, there is no interest.
But it doesn’t mean that you will only pay the property value. In fact, there are several added costs. For example, the remuneration of the managing company and any insurance fees, financial reserve, among others.
Therefore, the best way to choose the type of mortgage loan is to gather all the conditions offered and calculate the total cost of debt. That way, you can compare with more peace of mind.
What is leasing?
The financial market is dynamic and does not just offer two mortgage alternatives for you. In addition to the financing and the consortium, there is also the possibility of acquiring your property through leasing.
The leasing is understood by Brazilian law as a lease and has a basic operation similar to a rental. As with financing, the person responsible for purchasing the property is the bank or financial institution.
The bank acquires the property, which is registered in its name and makes a kind of lease agreement with the consumer. The person has lived in the place since the beginning of the contract and pays monthly installments related to it.
What, then, would be the difference in relation to financing? In leasing, there is not necessarily the purchase of the property. The contract has a fixed term and, when it ends, you can return the asset to the bank, renew your contract as a resident or decide to buy the property.
When deciding to purchase, the residual amount is usually negotiated. After all, the consumer has been gradually paying rent amounts that can be considered for sale. However, the value of the property can also be calculated according to the market.
It works, then, as a rental with a purchase option. You pay to live in the house or apartment and can, during the contract period, decide to use the amount paid to purchase the property.
The leasing has some advantages. One of them is to have lower interest rates as it is a different way of mortgage lending. Furthermore, it can involve less bureaucracy, depending on the case.
How does home equity work?
We also have one more real estate credit option, this time taking the property as collateral for the granting of loans. Home equity can be quite similar to the idea of mortgage (very common in other countries such as the United States).
It consists of offering your property as collateral to take credit. Thus, the money obtained from the bank or financial institution can be used for various purposes, including buying other properties and investing in the sector.
But why, then, would it be worth offering one good as a guarantee to acquire others? You probably know that one of the most burdensome elements of a loan is the lack of security from default.
Loans that contain some form of collateral may involve better payment terms, such as reduced paperwork and lower interest rates. In this sense, real estate is seen as one of the best guarantees.
In-home equity you can make a fiduciary sale as if it were a property refinancing. The asset is transferred to the name of the institution that grants the credit, and the debt is paid in installments. When there is a settlement, ownership of the property can be transferred again.
Attention: a financed property cannot be used as collateral in the home equity. After all, it is necessary that the property is already paid and registered in your name so that it can be transferred to the bank.
Although it works similarly to the mortgage, home equity has differences. The main one is that, in the mortgage, ownership of the asset is not transferred to the bank, which can bring legal problems to the process.
In this complete post, you learned about the main financing operations with real estate available on the market. Take the opportunity now to know some frequently asked questions – and their answers – when it comes to mortgage loans.
Thus, you will be even better able to make your decision, evaluating all relevant information on the topic. Check out!
What is the best credit option?
There is no one ideal alternative for everyone. The best way is to evaluate the advantages and disadvantages of each one to see the one that best suits you, considering your goals and needs.
Does the consortium have no interest?
No. The syndicate does not work like a loan. Therefore, there is no interest charge. However, it is not always cheaper than other options. That’s because there are fees that can reach the amount of interest charged on loans, for example.
What is the difference between leasing and renting?
A basic difference between the leasing and leasing process is the mediation of a financial institution. She owns the property and makes it available to the tenant. In rental contracts, the owner is usually a natural or even legal person (but not a financial one).
Another difference is that leasing contracts tend to last longer. In general, the tenant agrees to stay around 5 years in the property, while the rents are usually made for periods of one or two years.
In addition, the lease has the option of returning the property, continuing to live in it by renewing the contract or opting for the purchase of the location (paying the corresponding amount).
Is it worth funding to invest in real estate?
As you have seen, financing involves paying interest rates, which can be higher or lower depending on the bank’s conditions. Many people wonder if these fees invalidate real estate investment.
Generally speaking, this is not the case. Even paying interest on a loan, it is possible to have good returns when investing in real estate. Therefore, it is worth knowing the financing options and properties available on the market and evaluating the possibility of purchase!
In this content, you learned more about the main forms of mortgage loans: financing, consortium, leasing and home equity.
Knowing the details of each option is a fundamental step in deciding how to apply for credit in the market. And now you are better prepared to make the best decision!
So, what did you think of the alternatives you just discovered? Leave your comment or question!