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Thursday, April 25, 2024

How does the structured settlement loan work?

Even today, the owner of a home may want to sell his main residence, to finance the purchase of a new property. However, the date of sale of the latter can sometimes be different from that of the purchase of the future property.

In this case, there is a simple and practical solution that allows you to benefit from the financing necessary to carry out the transaction with complete peace of mind: the settlement loan.

How does it work? What are the conditions to qualify? Let’s see it all together!

How the settlement loan works

Granted by a bank, the settlement loan corresponds to a partial cash advance allowing the buyer to quickly purchase a property even before having sold their current home. 

A short-term loan, the settlement loan allows you to acquire a “favorite” property without wasting time.

It is reimbursed in a single installment and in full, once the property is sold by its owner. As long as the resale of the old home has not taken place, he only has to pay the interest on the settlement loan and the insurance premium.

The settlement loan rate, for its part, is generally between 3 and 5% depending on the formula chosen and the requirements of the credit organization.

For information, the settlement loan can be supplemented by a traditional real estate loan. Some banks even offer individuals with a modest income the option of postponing interest repayment until after the sale of the property.

As is the case when applying for a real estate loan, the credit institution will require you to take out borrower insurance for your settlement loan. This guarantee allows the bank to protect itself from the risks of the applicant’s insolvency.

The 3 types of settlement loans

Depending on your bank and the nature of your real estate project, three main settlement loan options are possible: the dry settlement loan, the back-to-back settlement loan and the buyout settlement loan.

The dry settlement loan

The dry settlement loan is granted when the sale of the current home covers the entire sale price of the new real estate acquisition.

In this situation, no additional borrowing is required. The buyer must only pay interest and insurance contributions (partially deferred) until the sale of the old home.

Concretely, the dry settlement loan is useful when moving from Paris to the provinces (where the price of real estate is lower). This is also the case when the children leave home and you are looking for a smaller, less expensive house.

More rarely granted by banking establishments, the dry settlement loan generally requires a personal contribution.

Ghulam Muhammad
Ghulam Muhammadhttps://www.juibd.com/
Hello, I'm Ghulam Muhammad, an experienced articles writer with expertise in on-page SEO optimization. I offer high-quality content creation services tailored to meet your needs. With a passion for crafting engaging articles, I strive to deliver captivating content that resonates with your audience. Your satisfaction is my priority, and I am committed to providing you with exceptional articles that exceed your expectations. Thank you for your support!

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