Among the services offered by financial institutions in Romania, there are two solutions available to those interested in receiving or not receiving money for the purchase of a new home.
The two solutions are a mortgage and a solution through the Noua Casa program, both of which have certain advantages that potential clients can take advantage of. An informed decision must be made after delving into the information as it involves large sums of money that will be paid out over decades.
In the following article, you will discover what a mortgage is and how the new housing program works, the pros and cons of the two forms of loan and the novelties introduced by the Romanian government in the program. Perfect for families who are first time buyers.
1. Mortgages and First Homes – Advantages and Disadvantages
A mortgage is a type of loan available to natural and legal persons through which large amounts of funds can be obtained for the purchase or construction of a house. The bank issuing the loan will obtain a guarantee for the purchase or construction of the home, not requiring the existence of other guarantees.
Its advantages include being able to pay longer than Maison Neuve’s plans (up to 35 years), accepting income from various activities (salaries, pensions, rents, royalties, etc.), accepting non-first-degree relatives of the debtor, and Possibility of enjoy a grace period for non-payment. Disadvantages include slightly higher interest rates compared to the Noua Casa program and higher minimum down payments required (15% for LE loans and 40% for EUR loans).
The New Homes Program was launched by the Romanian government to facilitate the purchase of the first home by Romanian citizens through guaranteed loans. Due to this guarantee, banks offer lower interest rates because there is virtually no risk of default. Other benefits of the program are:
- The minimum advance required by banks (5% for homes up to 70,000 euros and 15% for those between 70,000 and 140,000 euros if they are no more than 5 years old);
- Notary fees are minimal and the only commission paid is that of the National Guarantee Fund;
- The possibility of accessing the program by people with very low incomes, even those who receive the minimum wage in the economy.
The disadvantages are also quite numerous, which makes many potential clients opt more for the mortgage loan:
- A longer grant time due to excessive bureaucracy (the average time from submission of documents to receipt of money is approximately 60 days) may result in the loss of a favorable opportunity;
- It is not accessible to legal persons;
- The accommodation acquired under this program may only be rented, modified or transformed into a registered office with the prior agreement of the banks and the guarantee fund;
- It is not accessible for construction of a house, but only for the purchase of a manufactured home;
- The interest is always variable, which means that in the long term the rate can increase a lot.
2. What does Noua Casa vs. Mortgage?
In 2021, the Romanian state supports people interested in buying a first home through the scheme, which is essentially an improved version of the old First Home scheme. Changes have been implemented to the scheme to facilitate access to credit, changing the conditions under which credit is granted in favor of those who wish to borrow:
- For homes less than 5 years old, the maximum guarantee ceiling is increased to €140,000, if the person completes the amount with their own funds or only by means of a receipt;
- Guarantee commission reduced from 0.40% of the guarantee balance to 0.30%;
- Minimum initial fee of 5% for homes up to €70,000 and 15% for homes between €70,000 and €140,000;
- The guarantee level is 50% for homes over 60 years old and 60% for new homes over 10 years old.
In conclusion, obtaining a loan to buy a house should be done after weighing all the pros and cons of each form of loan, both can be suitable in certain situations.
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