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. Last Updated: 07/27/2016

Shortcuts to Climbing the Mortgage Mountain

Editor's note: This is the second of two articles about buying property in Russia.

You've done your initial homework and found out all you can about your mortgage options. But once you've done the initial research, what next?

The majority of expats probably already own a piece of property or two back home and are not strangers to the world of mortgages, surveys and insurance. But how do you begin to put the nuts and bolts of the process together when the country you're dealing with is Russia?

Certainly you should prepare yourself for the whole process to take around three months -- as always in Russia, perhaps more, perhaps less.

One option in starting the property and paper chase is to go through a realtor who has expertise in property investment and arranging mortgages. You should also find yourself a lawyer. There are several big Western legal firms and some smaller Russian ones that do this work, and your choice will largely depend on your budget.

You could, of course, go to one of the banks and apply for a mortgage directly, but going through a realtor should not cost you any more. While most Russian realtors are not independent of the banks they work with, the Western realtors usually have much wider bank connections and can place mortgages with several lenders. Realtors have not only the expertise to help you find an appropriate property quickly, but they can also provide advice on mortgages and insurance. Some have links with lawyers and appraisers, which makes life a lot easier and should usually work out cheaper all around.

At this stage you should be doing two basic calculations -- first, the maximum mortgage you can raise on your income and second, the total costs you will incur in the transaction. Don't forget that transaction costs typically include legal and appraisal fees, bank fees and charges, insurance, registration, a remont if required, furnishings and fittings, and any moving company fee.

It's also a good idea at this stage to draw up a specification of the property you are looking for in your price range, based on the mortgage you expect to be able to secure. The more specific and definite you can be when defining what you want, the better, as viewing property can be very time-consuming. Before you even start viewing, you should work out the area, or areas, you think you may want to live in.

Apartments in Moscow and St. Petersburg and cottages in the Moscow region are all possible collateral for mortgages. If you're seeking an old property to remont, then buy in the best possible area in the worst possible condition.

Whether you go through a realtor or not, more and more real estate agencies have web sites that allow you to armchair-browse, get a feel for what's available in your chosen locations and check out prices.

If you don't already know the area of your choice well, make sure it fits your needs before homing in on the properties it has in your budget range. You can ask your bank, directly or through your realtor, for advice. They know a great deal about areas, streets and even specific buildings. They should be able to tell you whether there are any problems with properties -- are they slated for demolition, are there likely to be title problems, or are there known structural problems? This little step can save you a lot of time and possibly money.

After choosing one or more properties, you are ready to make a mortgage application to one or more banks with all the supporting documentation. You also need to apply for life insurance and title insurance. Title insurance is peculiar to Russia and some other countries where property ownership procedures -- land registration and transfer -- are not well developed. It covers both the lender and the borrower, should there be some problems with a defective title to the property. The banks specify which insurance companies you can use -- some, such as DeltaCredit, use several, but Raiffeisenbank works with only two insurance companies.

The mortgage will be contingent upon life insurance of at least as much as the loan, and so your application for insurance should be submitted at the same time. The insurance company will require medical underwriting information.

It is well worth completing these stages as quickly as possible because once you have a firm underwriting decision by your bank, you then should know your budget pretty accurately. The banks also typically keep a mortgage offer open for three months, so if one purchase falls through you should still have time for a second and even third attempt while your mortgage offer is still valid.

The banks all require an independent appraisal of a property, and you should -- especially if you are going for an older property or plan a remont -- obtain a full structural survey. Your realtor, or bank if you are dealing with them directly, will assist you with arranging the survey. They are also often able to advise you on reputable remont companies.

A bank's mortgage credit committee typically takes two weeks to make an underwriting decision on your application. Assuming you or your realtor have done your jobs properly in a pre-assessment and discussion with the bank, then the decision should be positive.

However, it is critical that you submit the complete documentation and supporting evidence required by the bank. The banks don't like disagreements at the underwriting stage and are unlikely to change their decision if they initially turn you down.

Your bank then prepares the loan documentation, typically taking a further two weeks. That's the theory, at least, and so you should be very pleased if it's completed in this time. Remember the definition of a contract -- something that is binding on the weaker party -- and check the documentation carefully with your lawyer before signing the loan contract.

There are then two final hurdles before you can call your new home your own.

First, it is a legal requirement to register both the sale of the property and the mortgage secured on that property with the state. The process should take between two and four weeks and is usually taken care of by your lawyer.

Second, after registration you will receive funds from the bank and your lawyer should receive the title deeds to the property from the vendor's lawyer. The title deeds are the legal proof of ownership, and your lawyer must have these at the time of transfer of the funds -- no money goes anywhere without your lawyer getting the deeds.

Douglas Prentice is an independent broker specializing in real estate and financial planning. E-mail or telephone 777-1797.