Home / Real estate / Purchasing real estate / Buying an apartment
Back
Published: 12/19/2017
Reading time: 8 min
0
778
Russian legislation allows the possibility of purchasing an apartment in installments from an individual. In this case, the property will be pledged until the debt to the seller is fully repaid.
- Buying an apartment in installments: definition and features Is installment profitable?
- Registration of the contract
Often, buyers do not have enough money to purchase an apartment, and the seller does not want to waste time searching for another buyer. In this case, the seller may offer to conclude a purchase and sale agreement with installment payment.
Such transactions have not yet become widespread in the real estate market due to insufficient awareness of them. Many Russians mistakenly believe that only a bank issuing a mortgage loan can act as a lender.
What it is
Installment payment for the purchase of an apartment is a phased payment of the cost of the apartment, which is divided into equal parts depending on the period for which the buyer completes the transaction and the remaining amount after making the first payment. Installment means monthly or quarterly payment of payments in equal amounts.
As a rule, installment plans are drawn up when signing an equity participation agreement (DPA), which implies the purchase of real estate before it is put into operation. Simply put, the house has not yet been built or is at the construction stage. In this way, the buyer can save money due to the fact that such a purchase will be cheaper than ready-made apartments, and the buyer will also pay off the debt for the purchase of the apartment in installments.
Registration occurs less frequently if the installment plan is drawn up already at the conclusion of the contract for the purchase and sale of real estate. Sellers do not want to participate in such procedures and often refuse the deal. Such points should always be discussed at the very beginning.
Installment plan on the secondary real estate market
Installment plans in the secondary market are less common, but still exist. Some sellers are ready to give buyers the opportunity to pay the amount in installments. As a rule, such installment plans are issued for the minimum period - up to one year.
Traditionally, the scheme looks like this:
- A purchase and sale agreement is concluded;
- A loan agreement is concluded, which specifies the missing part of the amount and the repayment schedule;
- For the period while the debt has not yet been paid, the notary imposes restrictions on the apartment that do not allow it to be sold, given away or exchanged;
- After the installment plan is fully repaid, all encumbrances are removed from the apartment, and the owner can dispose of it at his own discretion.
The best solution is to buy an apartment in installments from the owner with the involvement of a lawyer. Moreover, this is relevant for both the buyer of real estate and the seller.
Back to Contents
Differences from mortgage
The differences between a mortgage and installment plans for the purchase of real estate are that the buyer does not need to take certificates from his place of work about his solvency. The buyer of an apartment in installments will only need a document that confirms his identity, that is, a passport and a down payment, which usually ranges from 10-50% of the basic cost of the property.
When applying for an installment plan, the buyer’s credit history and issues related to employment are not checked by the developer, who will provide you with an installment payment plan to complete the purchase of an apartment.
Installment payment is a simplified type of lending, so there is no need for guarantors or pledges of movable and immovable property. It is not associated with financial risks and other issues. You don’t need any life insurance or anything that the bank requires when applying for a mortgage loan.
Installment plans can be interest-bearing or interest-free. Depending on the conditions and the down payment, as well as the terms for which the buyer plans to arrange payment in installments, conditions will be provided by the developer. If the buyer is offered an interest-bearing installment plan, the rates are usually the same as in mortgage lending. On average, for the purchase of real estate they give 12-12.5% per annum for installments. In comparison with a mortgage loan, we will show you the average mortgage percentage - in large banks, a mortgage for the purchase of real estate is issued at 11-13% per annum.
Buying an apartment in installments: definition and features
The features of the purchase and sale of an apartment with installments are as follows:
- The seller acts as a lender.
- The buyer pays for the apartment not at once, but in installments.
For the buyer, this option of purchasing an apartment has many advantages: he does not need to take out a mortgage for the apartment and bear the costs associated with this procedure.
In particular, collect documents to confirm solvency, look for guarantors and additional security, and most importantly, overpay interest for the use of borrowed funds.
Not all buyers are able to obtain a mortgage loan even at higher rates.
Buyers may be attracted to an installment plan deal if they expect a large amount to arrive in the near future: for example, an annual bonus, proceeds from the sale of a car or a country house, etc. As part of such a deal, they do not have to wait until the entire amount is accumulated; they can deposit funds for real estate in stages, without fear that the apartment you like will be sold to someone else.
It is also becoming increasingly difficult for sellers to sell apartments due to declining demand. Therefore, offering a flexible payment scheme can attract buyers and sell real estate faster.
Sometimes sellers agree to pay in installments out of fear that the apartment may become cheaper in the near future.
Is installment beneficial?
We can say that such an installment deal is very beneficial for the buyer, while for the seller it has many risks. Therefore, the seller is primarily interested in the competent conduct of the transaction and the proper execution of the installment contract. Indeed, if the buyer fails to fulfill his obligations to make payments for the apartment, such an agreement will become an evidence base in court.
After concluding a deal with installments, the buyer has the right to live in the apartment he purchased.
At the same time, certain restrictions are established on the disposal of real estate: he will not be able to resell it until he has made all payments.
The apartment will be pledged to the seller until the debt is fully repaid, which creates certain guarantees for the former owner. In accordance with Russian law, such a transaction is called a mortgage transaction, although there will be no bank involved.
An apartment can be sold in installments on both the secondary and primary real estate markets. In the first case, the subjects of contractual relations are an individual, in the second - the developer and the buyer. But usually the installment plan is provided by the developer until the object is put into operation (for the construction period).
Therefore, in this case, an agreement for the purchase of an apartment in installments is not concluded (since the apartment itself does not legally exist yet), but an agreement for shared construction.
Advantages and disadvantages
Installment plans for purchasing an apartment have both their pros and cons.
The advantages of making an installment payment are:
- possibility of making a partial down payment. There is no need to pay 100% of the cost of the apartment at once.
- Minimum overpayment. If the buyer is offered an installment plan with an interest rate, it will be 12-12.5% per annum, and if there is a loyalty program, then the overpayment will be no more than 5-10% of the original cost of the apartment.
- There is no control over the buyer's income by the lender. The borrower is not interested in either a certificate of income or information about the client’s solvency.
- The cost of housing will not increase due to overpayments. If you are an investor, then you can resell the purchased property and make money on it. Usually people who have capital invest money in unfinished real estate and then earn good money on its resale. This is one of the types of investing capital in real estate.
Along with the advantages, installment plans also have their disadvantages:
- The installment plan must be repaid even if the buyer is in a “long-term construction” phase or the construction was frozen due to bankruptcy or other circumstances.
- If the buyer does not make payments on time, he will face serious fines and penalties. Installment plans provide for timely payment of each subsequent payment.
- An installment payment program for the purchase of real estate may not be available for all types of real estate. For example, for less popular apartments on the market.
- With an interest-based installment plan, as with a mortgage loan, the buyer will be subject to an overpayment. This is normal for this type of lending.
- Not all developers have the opportunity to offer their buyers a real estate installment program. Unfortunately, this narrows the search and choice of apartments. If apartments are in demand and are being snapped up, developers usually curtail the installment plan. They prefer to receive 100% payment for real estate immediately.
Risks
Let's look at what risks there may be when taking out an installment plan for an apartment and what the buyer will have to face.
- Problems with the developer. If the developer turns out to be dishonest, problems may arise. How can they manifest themselves?
- bankrupt developer. In this case, the refund for the purchase of real estate is practically zero. Only if the developer ceases to be bankrupt will he be obligated to return all the money to apartment buyers.
- If the developer decides to delay construction. When buying an apartment in a new building, there is always a risk of receiving your property not within the time frame that was originally promised. Therefore, it is worth studying the history of the developer’s buildings during the period of the company’s existence on the market.
- If the buyer does not pay the installments on time, he ends up overpaying. For failure to fulfill the obligations stipulated and specified in the contract, the buyer undertakes to pay all penalties. This can lead to a significant overpayment for the apartment. You always need to know under what conditions you apply for an installment payment plan for the purchase of any type of real estate - be it an apartment or a house.
Installment plan for an apartment - what is it?
According to the definition of the Civil Code of the Russian Federation, installment payment is payment for goods in installments over a certain time period. In a situation with the purchase of real estate, installment plans are provided by the seller, and not by a credit institution in the form of a bank. There are no overpayments of interest in this case.
Until the installment plan is paid in full, certain encumbrances are placed on the property. A person who has bought an apartment in this way can begin to fully dispose of it only after the debt is paid in full.
Just a few years ago, only a few developers offered installment plans for apartments, and the period was very short - up to 2 years. Today, more and more companies offer clients such a service and the installment period increases to 8-10 years.
Back to Contents
What you should pay special attention to in an installment plan agreement and its sample
Concluding an installment payment agreement is one of its most important parts. It is important to establish and discuss all aspects related to payments, overpayments, fines and sanctions. There are many situations and conditions in the installment payment agreement that need to be paid attention to and studied in more detail, perhaps even by consulting a legal agency.
First of all, pay attention to:
- documents that confirm the adequacy of the person providing the installment plan. A prerequisite is that your borrower in the installment agreement for the purchase of real estate must be the developer from whom the apartment is being purchased.
- The amount of the first payment must be specified in the contract.
- Some organizations indicate that they have the right to increase the amount of payment (change the cost of housing) in the event of inflation and other circumstances, up to changes in the exchange rate for national or foreign currencies. The buyer must pay attention to this point and, if anything happens, state that the price should not change under any circumstances.
- The conditions for early repayment must be specified in the contract. If the buyer will be able to repay the loan before its expiration date, this must be stated in the contract. Developers who offer installment plans with interest are not interested in the client repaying the loan ahead of schedule. Often they stipulate this point in the contract, thus insuring themselves.
- Transfer of ownership rights from the developer to the buyer. The developer may indicate several moments of transfer of rights to the buyer - after full repayment of the payment, at the time of the down payment or after putting the apartment into operation. It’s worth discussing this point and choosing the best one, whether for you or for the developer.
- The contract must stipulate responsibility for failure to fulfill the obligations of each party.
- Possibility of re-registration of agreements. If the buyer becomes insolvent, the person specified in the contract will pay off the installments for him.
- You can enter into an agreement that will stipulate the possibility of transferring the installment payment into a mortgage loan if it is more profitable for the buyer to repay or if it is easier to pay. It is also an insurance option for the borrower in the event that the buyer is unable to pay under the previous installment payment arrangement.
Where to find real estate in installments?
As a rule, information about the possibility of renting an apartment in installments without interest is presented on the official websites of construction companies. However, not all developers inform their potential buyers about this, giving preference to clients who are ready to immediately make a full payment or those who plan to take out a mortgage loan from a bank.
In addition, it is possible to buy an apartment in installments on the secondary market (more on this below). Finding a seller who is ready for such conditions is a rather difficult task. You need to review hundreds of advertisements and clarify everything point by point.
The best solution is to contact a professional real estate agency, whose specialists always have their finger on the pulse and are aware of all current situations. When planning to buy an apartment in installments in Sochi, you can turn to the specialists of Vincent Real Estate for help!
Back to Contents
Types of payments and their features
What types of payments exist and what are their features?
As we have already said, there are two types of installment plans - interest-bearing and interest-free. It all depends on the developer, on the conditions he provides and on his and your financial condition.
How to choose the optimal period
The period for which the buyer plans to make an installment payment for the purchase of an apartment should be based on family income and the possibility of monthly or quarterly payment. The buyer should not overestimate his abilities, this can lead to delays in payments, and therefore a significant overpayment of installments for the apartment.
If the buyer has a certain amount and has his eye on a property and plans to sell some expensive property in the near future, then he can take out an installment plan for a shorter period.
If the buyer relies on his income, then it is better to take for a long period. This way, payments will be lower and it will be easier for the buyer to close them without any delays.
Terms and requirements
What conditions and requirements must be taken into account in order to receive an installment plan to purchase an apartment?
- The buyer must have a down payment amount. It can be from 10% and higher, but it must be at least 10% of the entire cost of the apartment.
- A prerequisite for making an installment payment is the presence of a document that confirms your identity, that is, a passport.
- Willingness to bear full responsibility for arranging installment plans and make monthly or quarterly payments in good faith.
This concerns the requirements for the buyer.
It is worth considering that the developer also has requirements that he undertakes to fulfill in the case of providing installment plans for real estate.
- Official registration and documents that confirm it.
- Availability of a building permit, which is approved by the municipal authorities and the chief architect of the city.
- The authorized capital must be at least as required by law.
- The developer must have programs that provide for installment payments for real estate that the developer disposes of.
Buyer's instructions
What is the procedure for applying for installments? Let us highlight the most basic stages of choosing and applying for an installment payment plan for the purchase of an apartment:
- Find a developer who has such a program.
- Study the history of the developer’s work in this market segment. Find out how reliable and responsible he is, whether there have been any problems with past projects before, what feedback from clients who took and repaid installments from this developer.
- It is necessary to demonstrate a desire to register a DDU and submit documents for registration of an installment plan.
- Conclude an agreement with the developer and register it with the authorities/
- Comply with all terms of the contract and pay payments on time.
Housing in a new building
Often, installment plans are issued specifically when purchasing apartments in new buildings.
Firstly, the housing is fresh, it will be cheaper than apartments that have already been put into operation.
Installments are taken during the construction period and payments begin from the moment the contract is signed, but there is another option. The first involves the signing of a participation sharing agreement (DSA). The second option provides for installment payments when the house has already been put into operation and this type is drawn up on the basis of a real estate purchase and sale agreement between the buyer of the property and the seller, an individual.
This option is more complicated and is rarely concluded, since such conditions are not always beneficial to the developer.
In such cases, price changes are also used. It is worth considering that if the developer has agreed, he can stipulate in the clause that the price of the apartment will change (increase, as practice shows) when the house is put into operation.
Secondary
As a rule, secondary housing is less likely to be arranged in installments. Apartment owners do not want to deal with such a complicated procedure for them and delay the transfer of ownership.
This option is used when an apartment is sold to relatives or friends, and even then rarely. To purchase and apply for an installment plan, an apartment purchase and sale agreement is made and signed, all points that are related to payments and agreed upon by both parties are entered, information about the first payment, the moment of transfer of the home into ownership of the buyer and sanctions that must be written down are also entered. case of delayed payments.
No down payment
Regarding taking out an installment plan for an apartment without a down payment, one thing can be said - this is quite rare, since it is not profitable for either developers or apartment owners to take such risks. We are mainly talking about mortgages.
State assistance
The state can provide assistance in obtaining installment plans. This is true. There are various loyalty programs that provide financial assistance from the state to those in need. But it's not so easy to get it. To do this, you need to meet the selection criteria based on age, income, or be in military service, or work in government agencies.
Basically, such programs are developed for young families or youth in general.
Late fees
With late payments when applying for an installment plan for the purchase of real estate, everything is quite strict. If the buyer misses a monthly or quarterly payment, according to the contract he undertakes to pay a fine or penalty, which he promptly negotiates with the seller.
On average, one day of delay will cost the buyer 0.5-1% of the amount owed. Therefore, the overpayment will be colossal. You should stick to it and initially expect to pay everything on time. This applies to both applying for installment plans from a developer and applying for installment plans from an individual. Therefore, we recommend that you evaluate your strengths and take an installment plan for the period that the buyer can handle.
What is interest-free installment plan when buying an apartment?
An interest-free installment plan is practically the same as a mortgage loan, but, in fact, without interest. The seller simply agrees that the buyer will pay him the entire amount for the home not immediately, but in installments over some time. The specific terms of such an installment plan depend on the seller, since only he decides whether to agree to this type of “loan” at all or not.
Example: An apartment costs 3 million rubles. The buyer does not have the entire amount in his hands at once, he only has 1 million. The buyer agrees with the seller on an installment plan, pays 1 million at once and undertakes to repay the balance of the debt over the next year.
Installment plans are usually not profitable for sellers, since they would like to receive the entire amount at once and use it to purchase another home. As a result, such offers are relevant mainly when purchasing apartments from developers. Individuals agree to such a payment scheme extremely rarely.
