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The provision of funds is a fundamental step if you are going to apply for financing for the purchase of your new home. So that you are not caught by surprise and have everything ready, in this post we tell you what it is and how the provision of funds in a mortgage works. Let’s go there!
What is the provision of funds in a mortgage?
The provision of funds, which is also called “reserve fund”, is a mandatory step that must be processed in the process of applying for and signing a mortgage. Once the bank has given us the go-ahead and granted us the mortgage, we have to pay a series of management costs that are handled by the bank.
For this reason, the financial entity will ask us for a specific amount to cover these expenses and, once the payments have been made, the accounts will be settled with the bank, which will return the remaining money to you.
So it is important that you have some money saved to be able to make that down payment for the mortgage.
What expenses are covered?
A few years ago, mortgage and purchase and sale expenses amounted to around 10% of the price of the property, which meant a fairly significant outlay for borrowers.
However, since the so-called “mortgage law” of 2019 was passed, the amount that must be delivered to the bank as a provision of funds has been reduced quite a bit. As of today, you will only have to pay the appraisal of the home and your copy of the deed of sale.
Also, the banks usually estimate the necessary money upwards so that there are no problems and to ensure that they will have the right amount. But don’t be confident: ask the bank for the invoices of the expenses that they have faced with the provision, and make sure that they return the surplus amount to you.
How does a provision of funds work?
These are the steps that the financial institution follows regarding the provision of funds:
- The client makes the mortgage application.
- The entity makes a feasibility study to make sure of your debt capacity. That is to say, of if your financial situation allows you to face a loan of this caliber. For this, the bank will ask you for certain documentation (contract, presentation of IRPF and others). This process usually takes a few days, so it is important that you have time until the signing date of the deed.
- Once you accept the bank’s mortgage offer, they will ask you for the provision of funds. Ideally, they will present you in detail what each amount will be used for. It is a gestoría, generally established by the bank, which is in charge of carrying out the procedures.
- After signing the mortgage and the deed of sale, the bank makes a liquidation of the provision of funds that must be reviewed by the buyer. Once reviewed and accepted, the bank must return the remaining amount.
Settlement of the provision of funds
As we were telling you, the bank usually calculates upwards the amount necessary to pay the expenses. For that reason, once paid, it must return you the remaining amount. If it does not do it, do not forget to claim it. And also ask for a proof of the income of this surplus and invoices of all the payments made with the provision of funds.
This process can take months, so you can set an alarm or some kind of reminder.
Now that you have a thorough understanding of the escrow process, you can apply for a mortgage and be confident that you are in control of the terminology and steps. If you are looking for a new home, at Sonneil we offer the best homes near the sea and we can help you with all the paperwork.
