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Purchasing an apartment from parents or other relatives is often associated with the opportunity to purchase housing at the most attractive price.
In addition, issues of “related” purchase and sale of housing between parents and children can arise for other, very diverse reasons, for example, when dividing property in the family.
According to the law, the fact of purchasing housing from close relatives is not at all illegal, provided that all legal actions relating to the purchase and sale of residential real estate were carried out strictly within the framework of existing regulations.
At the same time, a citizen who wants to purchase housing from his parents may encounter certain difficulties if, in order to implement the considered purchase and sale option, he needs to attract borrowed funds in the form of a mortgage loan.
In addition, the buyer of an apartment in a “related” purchase and sale transaction will have to forget about the possibility of obtaining a tax deduction, since this is directly provided for in Russian tax legislation. The purchase of housing from a close relative is considered by the tax authorities as a transaction between interdependent citizens, therefore, the purchaser of residential real estate from a parent will not be able to count on the property tax benefit provided for by regulations when purchasing an apartment.
Reasons for difficulties with a mortgage
As practice shows, Russian banking organizations do not always have a good attitude towards such “related” transactions and may refuse to issue a mortgage to the applicant.
The reasons for such a negative attitude are the well-founded assumption of the creditor bank that the potential borrower is purchasing housing from his parents in order to cash out the borrowed money or deliberately inflate the market value of the purchased apartment.
Some financial institutions even immediately indicate in the description of their loan products information about the impossibility of purchasing real estate from close relatives.
But even when these restrictions are not specified, the probability of refusal to provide mortgage funds to a borrower purchasing residential property from his parents is still quite high. Refusals in mortgage financing of “related” transactions are aimed at reducing the risks of the lender, who fears that the borrowed funds will be used by the borrower for purposes other than the actual purchase of residential real estate.
Banking organizations are especially wary of such “related” home sales when the potential borrower offers to contribute maternity capital as a first mortgage payment. Such purchases may not be approved by the Pension Fund, and, accordingly, the risks of overdue debts on the borrower's down payment increase.
We also note that transactions for the purchase and sale of residential real estate between relatives are usually not available to participants in various government programs aimed at improving housing conditions (for example, preferential mortgages for military personnel, law enforcement officers, etc.).
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.).
How to get a mortgage?
The only option for a potential borrower who wants to buy a home from his parents and is faced with an obstacle to obtaining a mortgage due to a “related transaction” is to try to negotiate with the bank.
First, it is advisable for a potential borrower to study the loan products offered by the market, communicate with employees of various banking organizations and try to find out about the possibility of purchasing housing from their parents using mortgage funds.
To quickly and competently select loan products, you can even contact a mortgage broker who can quickly analyze the offers of different credit institutions. Perhaps in this way the potential borrower will be able to find a lender who is ready to immediately provide mortgage funds without taking into account who the buyer and seller are, as well as the presence of family ties between them.
If a potential borrower still encounters difficulties in obtaining mortgage financing, you can try to prove to the creditor bank that the planned “related” sale transaction is not a way to circumvent the law and fraudulently obtain borrowed funds.
One of the simplest proofs of the reality of the transaction and the payments made between the seller and the buyer is making payments for an apartment in non-cash form. This also minimizes the risks of claims from relatives and attempts to invalidate the purchase and sale of housing through the court, which, in turn, reduces the risks of the lender.
However, the creditor bank may have other requirements for the borrower and the procedure for processing the transaction for the sale of housing by the parents. Thus, some financial institutions rightly fear that the cost of residential real estate will be artificially inflated, and the borrower will again have the opportunity to spend borrowed funds for purposes not related to the purchase of housing. But this banking risk can also be minimized if you invite the lender to evaluate the property being purchased by an independent expert accredited by the bank itself.
In any case, when trying to obtain mortgage financing from a banking organization, it is important to immediately inform the lender of the impending “related transaction”. Otherwise, when the bank’s security service learns about the concealment of this fact, the risk of a potential borrower getting into the so-called “black list” of a credit institution increases, and accordingly, the risks of being refused a mortgage not only in this situation, but also in subsequent situations increase. citizen appeals.
If you immediately tell a bank employee about the fact that the home buyer and his seller are related, and also explain the purpose of the upcoming transaction, then the chances of its approval by the credit institution usually increase significantly. For example, a potential borrower can talk about the division of property between brothers and sisters, in which the parties agreed that one of them would buy an apartment from their common parents, and the rest would receive other property or money.
In this case, the potential borrower can prove that the upcoming transaction to purchase a home from their parents is not fictitious, because the money for the apartment actually goes to the relatives.
It is also worth considering that the lending bank is more likely to approve a mortgage if the parents of the potential borrower have a residential property that is not their only home. And it’s even better if they are registered at a different address. In this case, it is advisable for the potential borrower to immediately present supporting documentation to the bank employee.
How to increase your chances of approval
Due to some difficulties, it is important to study the list of bank offers to see if it is possible to obtain a loan to buy an apartment from relatives. The number of such programs is limited, so it makes sense to contact a credit broker who, thanks to experience and cooperation with lenders, will quickly select the best option.
The chances of approval increase in the following situations:
- Housing purchased from a relative does not belong to the category of the only one;
- The seller is actually registered and permanently resides at a different address;
- A form of non-cash payment is used, which involves transferring funds to the account of a relative;
- The bank enters into a situation where there is a need to purchase in this way, for example, there is a desire to divide property between brothers, sisters or spouses;
- The real estate appraisal is carried out by a specialist recommended by the credit institution, which guarantees that the cost of the apartment is not overestimated.
You should not hide from the bank the fact of your intention to purchase an apartment from a close relative. If such circumstances are identified, the client may be added to the “black” list of unreliable clients. Obtaining such a status will mean a likely refusal to receive a loan not only from this organization, but from other financial institutions.
After receiving approval of the application and the property by the bank, the loan application procedure will be standard. The main stages will be collecting documents, obtaining insurance and signing an agreement, followed by going through the state registration procedure.
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.
Buying out a share in an apartment from relatives
Buying out a share from relatives is not difficult and particularly difficult when it comes to paying with your own funds. If we are talking about trying to get a loan for such purposes within the framework of a mortgage program, then the chances of receiving approval are minimal. Financial organizations are even more wary of these types of transactions, since in addition to the risks of “related” agreements, additional ones appear.
These include:
- low cost of an individual share;
- difficulties in selling real estate “in parts”;
- significant costs if it is necessary to resolve the conflict in court.
The chances of approval for the purchase of a share from a relative increase if the buyer subsequently becomes the sole owner of the entire apartment. To insure risks, the bank may require the mortgage to be secured with other property, and the percentage and amount of the down payment will most likely be increased.
If you cannot get approval for a mortgage to buy out your share, then it is worth considering other options for solving the problem. It is possible to try to take out a consumer loan or credit for any purpose. In this case, the interest rate will be higher, the loan amount and term will be shorter, but in return the client will not be required to explain the direction of spending the funds. The procedure for obtaining such loans involves fewer checks and fewer documents provided. An additional advantage will be the absence of costs for real estate valuation and insurance, and there is no encumbrance on the acquired share.
The complexity of the “related” purchase of real estate under a mortgage is due to the limited availability of such offers on the market, since banks classify these types of transactions as risky. After receiving approval from the credit institution, you can begin collecting and processing documents, and in general, the process of providing such a loan does not have any significant differences.
The procedure for purchasing an apartment with a mortgage from parents
The algorithm for purchasing residential real estate from parents is almost similar to the general procedure for purchasing an apartment using mortgage funds.
Accordingly, the procedure for registering housing for “related” purchase and sale will consist of almost the same stages as when purchasing residential real estate from third parties. The difference is that when purchasing an apartment from parents, the initial stage associated with finding suitable housing is excluded. At the same time, a potential borrower entering into a “related” transaction usually has additional troubles associated with collecting documentary evidence of the reality of the purchase and sale.
So, to buy an apartment with a mortgage from your parents, a potential buyer will need:
- Conclude a preliminary agreement for the sale of housing with the potential seller and, perhaps, even write down, as in most agreements for the purchase and sale of residential real estate, a condition on the payment of a deposit by the potential buyer;
- Choose a suitable loan product and find out all the bank’s requirements;
- If necessary, conduct a housing assessment;
- Collect all required documents, submit them for approval to the lender and receive a loan decision;
- If the bank is satisfied with everything and the applicant receives a positive decision, apply for a mortgage and make a down payment. You may have to take out property and life insurance for the borrower, as well as co-borrowers;
- Register the transfer of rights in Rosreestr.
These are the main steps that are necessary to buy an apartment from relatives.
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Which banks should I contact?
In 2020, 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 a “related” mortgage is impossible in 2020 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.
