What Are the Most Important Differences Between a Home Loan and a Financial Lease?

You chose the house of your life, and you decided to buy it by using the bank to finance you with the amount of money required to buy the house, but when you went to the bank, you were confused between financial financing options, as the institution put you in front of two options, the financial leasing of the property or the housing loan! And you couldn't decide at that moment?

Until you decide what to choose easily and make sure that your decision is correct; Homes Jordan will provide a simplified and detailed explanation of both options to support you in making your decision to buy a home based on the information you have. 

Let's start with financial leasing and learn about: 

The parties to the financial lease contract

What is financial leasing?

Objectives of financial leasing

Some banks that provide financial leasing services in Jordan

1. The parties to the financial lease contract

● The financier: the bank, which will purchase the required residential property.

● Lessor: The bank will lease the property to the lessee (the beneficial party).

● Tenant: the beneficiary party of the property (buyer)

● Leasehold: the property (house) that has been purchased.

● Installments / Time Period: A fixed monthly amount that is determined to be paid within a specified period

2. What is a finance lease 

It is a contract (contractual agreement) between the two parties of the lessor (here we will talk about the bank, the owner) and the lessee (the buyer, the beneficial party), according to which it is agreed that the tenant has the right to use the (rented) house in exchange for regular fixed installments (rental installments) to be paid within a period specific time.

Upon completion and expiry of the installment payment period, ownership of the property is automatically transferred to the tenant according to the contract between them.

Multiple titles, one goal 

It is important to realize that financial leasing has multiple terms such as:

 Lease to own, lease to own, finance lease, financial lease, lease to own...

All of them carry the same goal, which is the automatic transfer of ownership of the leased property to the lessee at the end of the contract period.

3. Objectives of a financial lease 

A financial lease is one of the types of financing designed to guarantee the rights of both parties (the lessor and the lessee) as follows:

● The rights of the lessor (the owner bank)

- Ensuring that the property remains in his possession until all installments incurred from the leasing process are paid.

- That the owner has obtained his rights represented by the regular rental installment if the sale process is not completed.

- Financial leasing limits the powers of the lessee to dispose of the real estate by mortgaging or selling it and other things before the expiration of the lease term and the completion of the sale process.

● The rights of the lessee (customer):

- The freedom to choose between owning the property at the end of the agreed-upon installment period or continuing the lease contract.

- Agree with the bank on specific and fixed conditions throughout the leasing period, so these conditions are not affected by any economic factors that may occur.

- The tenant does not have to invest a large amount of money as a down payment for the property.

- Most cases of financial leasing contracts do not require the presence of a guarantor.

Enjoy a long rental period and easy installments.

Important..

● Some real estate housing companies in Jordan resort to owning the property through the financial leasing option, in order to exempt the customer (buyer) from assignment fees.

● Many projects specialized in building villas also resort to the option of financing leasing in order to make it easier for the customer to buy the property and exempt him from assignment fees.

● The tenant can purchase the property during the lease term.

● Finance lease contracts are not subject to cancellation and the contract must be adhered to until the end of the finance lease period.

● The possibility of renewing the contract upon its expiry with new conditions.

● The tenant shall bear the costs of using the property, including maintenance, expenses, and others.

4. Some banks that provide financial leasing services in Jordan

● Housing Bank

● Safwa Bank

● Al Rajhi Bank

● Jordan Islamic Arab Bank

Now let's move on to the Home Loan.

Before we begin to clarify the differences between financial leasing and a housing loan, we invite you to review the article on the conditions for granting mortgage loans and to learn about all the details of a housing loan, and here we will also talk about:

parties to a home loan

What is a home loan

Objectives of the home loan

Some banks that provide financial leasing services in Jordan

1. The parties to the housing loan

● Financier: Bank

● owner: the owner of the property (house)

● Client: Buyer (Housing Loan Applicant)

● Real estate: house, apartment, villa, etc

● Down Payment: An amount paid in cash to reduce the amount of the monthly installment or the term of the payment

● Mortgage: Mortgaging the property to the bank until the end of the repayment period

● Department of Lands and Survey: to sign the property registration deed (Al Qushan)

● The real estate agent: (not a fixed party in the housing loan transactions) In some cases and according to the client’s requirements, the real estate agent such as Homes Jordan is a direct party in the process of offering the house for sale or searching for the house, and the real estate agent completes the buying and selling procedures with the bank and registers with the Land Department and space.

● Guarantor: Not a primary party in housing loans, it may be a party in some cases.

2. What is a Home Loan?

 It is a financing program from the bank to the customer, which consists in lending him an amount of money to buy a new property within a bank contract with specific conditions. The housing loan is characterized by a high financing rate that may reach 100% of the value of the total property, and a repayment period of up to 30 years. These percentages and periods change According to the value of the property, interest rates and bank laws.

The housing loan through the bank requires (a certificate of proof of the customer’s income for at least 6 months, the presence of a guarantor, a real estate guarantee approved by the bank).

The good thing in the case of a housing loan is that ownership of the property devolves immediately to the customer when the title deed (Al Qushan) is registered at the Department of Lands and Survey in the name of the customer, but the property remains mortgaged to the bank as a real estate guarantee until all installments are paid

3. Objectives of the housing loan

A home loan is the right solution for people who want to own their own real estate (home of life), but do not have enough cash to cover the value of buying the house, and we will look at the rights of the bank and the customer to compare it with the objectives of financial leasing:

● Bank rights

- The presence of the guarantor who undertakes the payment of the installments in the event that the customer fails to pay.

Mortgage the property with the bank until the end of the repayment period.

A certificate proving the customer's income from the authority that issues the salaries, which guarantees the bank's right to monthly payment.

● Customer Rights:

- Registering the ownership of the property (Al Qushan) at the Department of Lands and Survey.

- Release the mortgage of the bank property once the repayment period is completed.

Freedom to dispose of the house, whether selling or renting, bearing in mind that selling the property during the repayment period requires the completion of some bank transactions.

Freedom to dispose of the house and make modifications and decorations without restrictions and request permission from the homeowner.

Important..

● A home loan for the purpose of owning a property is better than a personal loan, due to the high financing rate, which may reach 100%.

● Housing loan contracts and the Land and Survey Department is a guarantee for the client to own the property.

4. Some banks that offer housing loans in Jordan (noting that Homes Jordan has agreements with these banks)

● Safwa Islamic Bank

● Al Rajhi Bank

● Jordan Kuwait Bank

● Arab Jordan Investment Bank (AJIB)

● Union Bank

● Capital Bank

● Jordan Ahli Bank

● Islamic International Arab Bank

● Bank of Jordan

These are the most important details of the differences between financial leasing and housing loan, which will support your first steps to choose which one is most suitable for you based on your requirements and needs.

As always, in Homes Jordan, we are keen to provide you with all the options that save you the trouble of searching for information and details related to various real estate topics, in addition to the presence of an integrated team of

Architectural and Design Consultancy and legal experts and consultants who put in your hands all the information and advice you need related to real estate, housing loans, and transaction procedures in the Land and Survey Department.

Therefore, do not hesitate to contact us at any time 24/7 to obtain a free consultation and schedule a meeting with a member of our advisory team.