Buying a home with a mortgage

How do you get a mortgage: a Fund mortgage or a bank one?

In Azerbaijan people mostly take a mortgage in one of two ways. The first is a loan from the funds of the Mortgage and Credit Guarantee Fund (below simply the Fund); we call it the Fund mortgage. It comes as a regular or a preferential loan, and the loan is issued by the Fund’s authorized banks. At the borrower’s request, the Fund can also give a guarantee on such a loan, in which case the borrower pays for the guarantee. The second way is a bank mortgage from the bank’s own funds, with terms set by the bank itself.

A preferential loan is not given to everyone. Only people in set categories can use it, and only once. The list of categories may change; see it on the Fund’s website. Do not confuse the preferential mortgage with MIDA’s “Affordable housing” system: MIDA sells its apartments to citizens in these categories at a preferential price through a separate electronic system, and they can be bought either with a preferential mortgage or with your own funds. And under the Fund’s rules, the preferential mortgage is not limited to MIDA apartments only. The interest rate, the loan amount and the share of the down payment may change; check the current figures on the Fund’s and the bank’s websites.

The Fund’s loan is issued to citizens of Azerbaijan. If you are not a citizen, ask the bank directly about the terms. The Fund also has a mechanism called “Rental housing with an obligation to sell”; do not confuse it with a mortgage loan. There you live in the apartment as a tenant, and when the obligations under the lease have been fully met, the apartment passes into your ownership.

Who gets a mortgage and what does the bank look at?

A Fund mortgage takes into account only a stable income confirmed by an official document. There is no minimum salary requirement, but the monthly payment must not exceed a certain share of your income. If your official income is lower than what you can actually afford, the approved loan may also turn out small. Work out, too, what will be left for the family after the payment. Owning other housing does not prevent you from getting a Fund mortgage.

If your income is not enough, with a Fund mortgage a close family member, that is, a spouse, child or parent, can join the application as a co-borrower. Note one thing: the house is registered only in the main borrower’s name. The co-borrower’s income is counted and they bear joint liability with the main borrower, but they do not become an owner of the house. Clarify the consequences of this with a lawyer before signing the contract.

With a Fund mortgage you must not have current credit obligations in arrears. With a bank mortgage the bank sets the requirements itself; ask it for the criteria.

Age is also looked at. Under the Fund’s terms, the borrower’s age on the date of the last loan payment must not exceed the retirement age set by law. If you are close to that limit, the loan term gets shorter and the monthly payment goes up.

• Is your income confirmed by documents?
• Do you have arrears on current loans?
• Does your age allow you to take a loan for the term you need?

Down payment, valuation and insurance: what costs are there besides the loan?

With a Fund mortgage, the upper limit of the loan is capped at a share of the home’s price. The rest, that is, the down payment, you pay from your own funds. A preferential loan and a regular loan have different minimum down payment shares. If the loan is issued with the Fund’s guarantee, the borrower also pays the Fund for the guarantee. With a bank mortgage, the bank itself determines the down payment.

Get the terms of several banks in writing and compare them: even with the same loan amount, the total cost can differ. If you see a promise of a “mortgage with no down payment”, ask for the terms in writing and the total cost. To get a rough idea of the monthly burden, use the calculator.

With a Fund mortgage, the home is valued by an appraiser. You choose one yourself from the list of valuation companies authorized by the Fund. The result may not match the price the seller wants. So until the valuation and the bank’s decision are known, do not give a non-refundable deposit.

With a Fund mortgage, the borrower must be insured against the risk of death and loss of working capacity, and the home that serves as collateral is insured at market value for an amount no less than the loan amount. The insurance company is chosen in agreement with the bank. Ask the bank about insurance terms for a bank mortgage. Read the policy before signing: what is covered and what is excluded. Besides the loan itself, build the following into your budget:

• The down payment and, if there is one, the fee for the Fund’s guarantee
• Bank fees
• Valuation and insurance costs
• State registration and paperwork costs

What kind of home can you buy with a mortgage?

The main condition is that the right of ownership is registered in the state registry. A Fund mortgage is, as a rule, issued for housing whose ownership has been state-registered; there is a separate case for a home that is not finished, described below. When accepting finished housing as collateral, banks too usually require an extract (kupcha).

The Fund mortgage covers private houses, garden houses and apartments in apartment buildings built after a certain date, and it does not finance buying a plot of land. With a Fund mortgage, a separate share of a house in common shared ownership cannot be the subject of the mortgage. The Fund mortgage is also not given to build a house. The Fund mortgage is issued not only in Baku but across the country. Ask the Fund and the bank about the construction-year limit and the additional restrictions on the preferential loan before you apply.

In a resale and in a private house, having the documents in order is a mandatory condition but not a sufficient one: the bank may also look at the year of construction and the condition of the house. In a new building, the extract is usually issued after the building is commissioned and the ownership of the apartment is registered. For a home that is not finished, the Fund’s terms specify one case separately: the share of land tied to the apartment is bought under a notarized contract, and a security entry in the buyer’s favor is made in the state registry. The Civil Code also lets the buyer enter into a mortgage contract if such a contract provides for the possibility of using a mortgage loan. With a bank mortgage, whether to lend for an apartment under construction is decided by the bank itself. Before you pay, get a written answer from the Fund and the bank on the specific project.

Listings on Birev have a “Mortgage available” mark and filter. This is the listing author’s note, not a bank’s decision. Approval for a specific home comes only from the bank, so before applying have the bank check the extract. The “Ready mortgage” mark means something else: according to the listing author’s note, the home already has an active mortgage, and the buyer is expected to continue it. Whether that is possible, and on what terms, only the bank can say.

How do you apply for a mortgage and what should you prepare?

An application for a Fund mortgage can be submitted either at an authorized bank or directly in the Fund’s electronic system. An electronic application is submitted with an enhanced electronic signature, for example ASAN İmza, and receives a registration number. Applications are registered and reviewed in the electronic system in order of queue.

After that, things go roughly like this. The bank gives preliminary approval, and you choose a home. The appraiser values the home, and the bank makes its decision. Then the documents for the loan, the mortgage, the insurance and the sale are prepared, the mortgage is state-registered, and payments begin on schedule. Depending on the bank and the program, the order may differ a little.

The mortgage contract is concluded with the bank in writing, certified by a notary and registered in the state registry; the mortgage right arises precisely from the moment of registration. After that, the registry carries an entry for the mortgage in the bank’s favor on the home, while possession and use of the home stay with you. With a Fund mortgage, the sale and the mortgage can also be drawn up in a single combined contract. The notary stage of the sale is described in a separate guide; ask the bank in advance how it will go when you buy with a mortgage.

The list of documents may differ depending on the bank and the program; ask the bank for the current list in writing. The list for the Fund mortgage is on the Fund’s website. Usually these are needed:

• An identity document; documents confirming place of work and income (for a business owner, tax registration documents and tax returns)
• Documents on family status: a marriage certificate (or a divorce certificate), ID cards or birth certificates of minor family members
• For a preferential loan, a document confirming that you belong to a preferential category
• The extract for the chosen home and other documents the bank asks for
• Funds set aside for the down payment and additional costs
• If you are married, the notarized consent of your spouse to the mortgage: a home bought during marriage is considered the spouses’ joint property unless a marriage contract provides otherwise

How do you sell a home bought with a mortgage, and what if payments get hard?

For the duration of the mortgage, the home stays pledged to the bank. Unless the mortgage contract provides otherwise, selling, gifting or renting out a pledged home requires the bank’s written consent. The law knows one exception: if the money from the sale is enough to repay the debt in full, the home can be sold even without the bank’s consent. In that case the bank issues a certificate of the remaining debt, and the notary certifies the sale contract and ensures that the amount covering the debt is transferred to the bank’s account. Check in advance with the bank and the notary which route you will take.

The loan can be repaid early. The bank can demand compensation for this only if the loan contract provides for it, so read that clause before signing. After the debt is fully repaid, the bank must file an application to remove the mortgage registration; check yourself, too, that the mortgage entry has been deleted from the registry.

If payments get hard, do not wait for arrears; talk to the bank beforehand. With a Fund mortgage, in case of financial difficulty you can apply to the bank through the electronic system for loan restructuring, for example an extension of the term or a temporary pause in payments. If payments stop, the bank will first send a written notice of foreclosure on the home; if you disagree with it, you can appeal it in court within the period set by law. In the end, the pledged home may be put up for sale in the manner provided by law. Discuss the options, including an agreed sale of the home, with the bank and a lawyer.

What happens in the event of the borrower’s death, divorce or loss of income, find out in advance from the mortgage contract, the insurance policy and a lawyer. In a divorce, the division of the home and who keeps the loan is a separate legal question.