This is a justified question when you decide to buy a home and you have to choose the type of loan. The choice can often be difficult: mortgage or First Home? Both variants present various advantages worth considering, which we will present in the following. But for starters, let’s find out together what are the fundamental differences between the two lending options.
What is the mortgage loan/First House?
- Mortgage lending is a financial instrument through which both an individual and a legal person have the opportunity to access it in order to purchase, build or renovate a home. The loan itself will be guaranteed through the home in question.
- The First House Credit is a government program through which individuals can buy or build a home. This type of credit is guaranteed by the Romanian state in a percentage of 40% for homes older than 5 years, respectively 50% for new ones.
Minimum advance required
In the case of a mortgage loan, the advance is 15% of the value of the home. In the case of a loan made through the First Home program, the advance is at least 5% plus the equivalent of three months’ interest. The latter represents a collateral deposit. Of course, the amount of the advance can be greater than that. In fact, the higher the advance, the lower the loan value.
The maximum amount that can be borrowed
In the case of mortgage loans, the maximum amount borrowed is influenced by the bank and, implicitly, by the lending policy that it practices. At the same time, the maximum value of the loan also depends on the value of the home and the income that the applicant has. The maximum amount can reach up to 300,000 euros.
For the First House, the rules are very well established. You can borrow up to 57,000 euros for homes older than 5 years and 66,000 euros for new homes and the construction of individual houses. If you choose to build a house by association, you can access funds up to 71,250 euros.
Period of repayment of the loan
The interval in which a mortgage loan is paid differs from one banking institution to another, the maximum duration being up to 35 years. The First House loan is granted for a maximum period of 30 years. Both types of loans allow the early repayment of the loan, in the situation in which the borrower wants this.
Interest rate
In both cases, interest is regulated by the BNR. Mortgages can be accessed either with a fixed interest rate (the values being between 6-8%) or a variable. In the case of the First House loan, the interest rate variates.
Civil status, income, and seniority in the labor market
For both types of lending, civil status is not relevant. The lending can be done for one person and the partner can become a co-payer. The income of the borrower is important because the value of the loan depends on it. We can say that people with lower incomes are more favored by the First House program than by conventional lending.
With regard to seniority in the labor market, it is important that the person making the loan has to work for at least 3 months on the current job and have a minimum of one year of age in the workbook.
The necessary insurance
Both the mortgage loan and the First House, require the realization of home insurance. However, mortgage lending also requires the provision of life insurance, which translates into additional costs.
Advantages of Mortgage Credit
- Allows access to larger loans
- The approval time of the file is shorter
- Allows the creation of a fixed rate interest loan
- The renegotiation of the conditions under which the lending is made is simple
- The purchased property will become the credit guarantee
- The repayment period can be over 30 years
- You can sell the house without paying the loan in advance
Disadvantages of mortgage lending
- The amount of the advance is at least 15%
- It requires a life insurance
Advantages of the First Home program
- The minimum advance required is only 5%
- The interest rate is quite small
- Notarial fees are lower
Disadvantages of the First Home program
- Requires 3 interest rates for collateral deposit
- The building is not subject to the Payment Giving Law
- The building cannot be alienated for 5 years
Both lending options offer advantages worth considering. Before accessing a loan, it is important that you properly inform yourself and choose the option that best suits your needs.
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