Different Payment Schemes
There are financing schemes or manner of payments available in the market. With a range of properties and payment options available, almost everybody can own a property. Payment schemes vary on a per-project basis. Typical payment schemes include cash, deferred payment, in-house financing and bank financing.
A type of financing in which the developer/seller extends the loan to the buyer, allowing them to purchase its property. In-house financing eliminates the firm's reliance on the financial sector for providing the buyers with funds to complete a transaction.
Under this scheme, there is no transfer of ownership to the buyer until the property is fully paid. Despite the higher interest rate compared to banks, buyers prefer this arrangement with the developer because loan processing is faster and easier. Another reason is the fixed rates of interest of in-house financing system for the duration of the loan period. This means the loans are not affected by economic and political developments which usually make bank interest rates fluctuate.
An application for in-house financing is typically evaluated when all documentation is completed and with solid evidence presented to support the various factors being used for evaluation. Length of processing may be prolonged by incomplete documents or insufficient evidence of capacity to pay.
Banks offer greater flexibility and lower interest rates than in-house financing. The going rate is about 9 percent per annum for a one- to three-year loan. This is usually adjusted upwards to around 12 percent for a 15-year loan. Since most banks offer payment periods of up to 25 years, monthly amortizations can be significantly lower than in-house financing.
The balance is financed by the bank, payable up to a maximum of 25 years, subject to bank approval. Under this scheme, ownership of the property is transferred to the buyer. The buyer in turn mortgages the property to the bank. This is typically covered by a Deed of Mortgage.
Contact the bank to secure a list of the documents required for bank financing. Ask the bank representative or mortgage officer for clarification on the factors which will affect their evaluation of your financing application. Also gather information on applicable interest rate, term, and processing timetable.
Immediately advise your Seller/Develope once you have been informed by the bank of the approval of your financing application. Typically, loan proceeds will be released by the bank directly to the Developer as the seller. In exchange, the Developer will release the proof of ownership (e.g. Transfer Certificate of Title) directly to the bank, upon your endorsement.