How to Get a Mortgage for an Amount Greater Than the Value of the Property

Rarely do banks provide mortgage loans that exceed the value of the property being purchased. However, in some cases this is possible, especially if additional funds are needed for repairs or to close other loans. It is important to understand that banks usually do not approve financing for more than 80% of the property value, but there are exceptions. What should you do if you need a larger amount?

How to get a mortgage for a large amount

Sometimes, when buying a property, you may need an amount that exceeds its market value. This may be due to the need to carry out repairs, pay for the services of a realtor or notary, or close other debt obligations. However, such requests are rarely satisfied by banks, and to receive such a loan, you must meet certain conditions.

When is a mortgage for an amount exceeding 80% of the property value possible?

Before issuing a mortgage loan, banks evaluate the Loan to Value (LTV) ratio, which shows the ratio of the loan amount to the value of the property. As a rule, banks do not issue a mortgage for more than 80% of the market value of the property. For example, if a house costs 200,000 euros, the maximum loan amount will be 160,000 euros.

This limitation is based on the Interministerial Committee on Credit and Savings (CICR) regulation of 22 April 1995, which recommended not to exceed 80% when granting mortgages on real estate. However, this rule is not mandatory, and if there are justified reasons, banks can grant mortgages exceeding 80%, and sometimes even 100%.

Requirements for obtaining a mortgage for an amount greater than the value of the property

While it is theoretically possible to get a mortgage for an amount higher than the value of the property, it requires meeting a number of conditions. First, the bank will check standard requirements such as the property valuation and the borrower's financial status. Then the bank must ensure that there are compelling reasons for increasing the loan amount.

For example, such cases may include:

• the need for additional funds for the repair or modernization of real estate;
• desire to include in the loan the costs of a realtor, notary or other expenses related to the purchase;
• the need to pay off other loans or debts at the same time as obtaining a mortgage.

These reasons should be documented and detailed in the mortgage agreement. For example, estimates for repairs or contracts with contractors should be provided to prove the need for a higher amount.

Additional guarantees and risks of a mortgage in an amount exceeding the value of the property

Obtaining a mortgage for an amount exceeding the value of the property is associated with certain risks and requires additional guarantees for the bank. Banks may tighten the terms of the loan and also require additional protection measures.

Additional guarantees from the bank

As the risk of non-payment of the loan increases, the bank may require additional guarantees, such as:

• registration of additional insurance for an amount exceeding the value of the property;
• attracting guarantors who will be able to repay the debt in the event of the insolvency of the main borrower;
• registering a second mortgage on another property to secure additional funds.

Due to the increased risks and requirements, banks rarely agree to such transactions, and the approval process can be more complex.

Risks of tax audits

Borrowers who take out a mortgage for an amount greater than the value of the property may be subject to additional tax audits. The IRS may suspect that the property is being overvalued to obtain a larger loan, which can lead to an investigation and possible legal consequences, including allegations of fraud or false information in official documents.

Alternative ways to get more money

Instead of taking out a mortgage for an amount greater than the value of the property, you may want to consider alternative financing options. Some banks offer specialized loan products that bundle the purchase of the property with the necessary expenses:

• The "purchase and renovation" mortgage includes not only the cost of the property, but also the cost of renovation work;
• A purchase and liquidity mortgage provides additional funds to cover various costs associated with a purchase.

In the first case, the loan is issued not in one sum, but in parts as the work is completed, which helps to control its implementation. In the second case, a second property is often required, which will be pledged as additional security.

Therefore, if you need to get a large loan amount, it is important to prepare carefully, confirm all expenses and take into account the risks associated with tax audits and additional obligations to the bank.