03 March 2004 04:08
Shortcuts to Climbing the Mortgage Mountain
Editor's note: This is the second of two articles about buying property in Russia.
You've done your initial homework and found out all you can about your mortgage options. But once you've
done the initial research, what next?
The majority of expats probably already own a piece of property or two back home and are not strangers to the world
of mortgages, surveys and insurance. But how do you begin to put the nuts and bolts of the process together when the
country you're dealing with is Russia?
Certainly you should prepare yourself for the whole process to take around three months -- as always in Russia,
perhaps more, perhaps less.
One option in starting the property and paper chase is to go through a realtor who has expertise in property
investment and arranging mortgages. You should also find yourself a lawyer. There are several big Western legal firms
and some smaller Russian ones that do this work, and your choice will largely depend on your budget.
You could, of course, go to one of the banks and apply for a mortgage directly, but going through a realtor should
not cost you any more. While most Russian realtors are not independent of the banks they work with, the Western realtors
usually have much wider bank connections and can place mortgages with several lenders. Realtors have not only the
expertise to help you find an appropriate property quickly, but they can also provide advice on mortgages and insurance.
Some have links with lawyers and appraisers, which makes life a lot easier and should usually work out cheaper all
around.
At this stage you should be doing two basic calculations -- first, the maximum mortgage you can raise on your income
and second, the total costs you will incur in the transaction. Don't forget that transaction costs typically
include legal and appraisal fees, bank fees and charges, insurance, registration, a remont if required, furnishings and
fittings, and any moving company fee.
It's also a good idea at this stage to draw up a specification of the property you are looking for in your price
range, based on the mortgage you expect to be able to secure. The more specific and definite you can be when defining
what you want, the better, as viewing property can be very time-consuming. Before you even start viewing, you should
work out the area, or areas, you think you may want to live in.
Apartments in Moscow and St. Petersburg and cottages in the Moscow region are all possible collateral for mortgages.
If you're seeking an old property to remont, then buy in the best possible area in the worst possible
condition.
Whether you go through a realtor or not, more and more real estate agencies have web sites that allow you to
armchair-browse, get a feel for what's available in your chosen locations and check out prices.
If you don't already know the area of your choice well, make sure it fits your needs before homing in on the
properties it has in your budget range. You can ask your bank, directly or through your realtor, for advice. They know a
great deal about areas, streets and even specific buildings. They should be able to tell you whether there are any
problems with properties -- are they slated for demolition, are there likely to be title problems, or are there known
structural problems? This little step can save you a lot of time and possibly money.
After choosing one or more properties, you are ready to make a mortgage application to one or more banks with all the
supporting documentation. You also need to apply for life insurance and title insurance. Title insurance is peculiar to
Russia and some other countries where property ownership procedures -- land registration and transfer -- are not well
developed. It covers both the lender and the borrower, should there be some problems with a defective title to the
property. The banks specify which insurance companies you can use -- some, such as DeltaCredit, use several, but
Raiffeisenbank works with only two insurance companies.
The mortgage will be contingent upon life insurance of at least as much as the loan, and so your application for
insurance should be submitted at the same time. The insurance company will require medical underwriting information.
It is well worth completing these stages as quickly as possible because once you have a firm underwriting decision by
your bank, you then should know your budget pretty accurately. The banks also typically keep a mortgage offer open for
three months, so if one purchase falls through you should still have time for a second and even third attempt while your
mortgage offer is still valid.
The banks all require an independent appraisal of a property, and you should -- especially if you are going for an
older property or plan a remont -- obtain a full structural survey. Your realtor, or bank if you are dealing with them
directly, will assist you with arranging the survey. They are also often able to advise you on reputable remont
companies.
A bank's mortgage credit committee typically takes two weeks to make an underwriting decision on your
application. Assuming you or your realtor have done your jobs properly in a pre-assessment and discussion with the bank,
then the decision should be positive.
However, it is critical that you submit the complete documentation and supporting evidence required by the bank. The
banks don't like disagreements at the underwriting stage and are unlikely to change their decision if they
initially turn you down.
Your bank then prepares the loan documentation, typically taking a further two weeks. That's the theory, at
least, and so you should be very pleased if it's completed in this time. Remember the definition of a contract --
something that is binding on the weaker party -- and check the documentation carefully with your lawyer before signing
the loan contract.
There are then two final hurdles before you can call your new home your own.
First, it is a legal requirement to register both the sale of the property and the mortgage secured on that property
with the state. The process should take between two and four weeks and is usually taken care of by your lawyer.
Second, after registration you will receive funds from the bank and your lawyer should receive the title deeds to the
property from the vendor's lawyer. The title deeds are the legal proof of ownership, and your lawyer must have
these at the time of transfer of the funds -- no money goes anywhere without your lawyer getting the deeds.
Douglas Prentice is an independent broker specializing in real estate and financial planning. E-mail
eurocapital@mtu-net.ru or telephone 777-1797.
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[The Moscow Times] |
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