Even with rising prices for land and real estate, the dream of owning one's own four walls is as alive as ever. Owning your own home is not only a way out of the constantly rising rents in Germany's big cities, but also a way of providing for old age. But until your own house is built, you have to overcome a wide range of hurdles and challenges. In the first place is the question of financing. How does it work with construction financing, what to look for in the process and how high are actually the chances of getting a loan for your own home?
What exactly is actually a construction loan?
Construction financing, usually also called real estate financing, includes loans and financing offers for the construction or purchase of their own property. The term of the financing for the own building goes back thereby to a time, in which most humans still built a house themselves. Especially in recent years and with less and less available land, however, it is often also a matter of simply buying a house or apartment with the help of financing through loans and credits and no longer becoming a builder yourself.
In itself it concerns also here only the assignment of a loan by a bank. In contrast to the classical consumer credit here the money for the financing is however earmarked and must be invested therefore compellingly into expenditures, which have to do with the building or the purchase of own real estate. Another important difference can be found in the topics of term and interest rates. The interest rate on real estate loans is generally lower than on consumer loans and, by its very nature, is designed for the long term. However, it is only in the rarest cases a loan that is paid off over 40 years, for example. Instead, it is a start-up financing that is either paid off or extended over time.
How does the construction financing?
The first step to real estate financing is to look for a property. That may sound actually natural, often however one tries first to negotiate a loan around afterwards an appropriate house or an dwelling in the price range to look for. Instead, one finds already a house, land or apartment to be purchased. With the appropriate documents one becomes with a bank vorstellig, which examines thereupon the value and in the doubt an own appraisal over the actual value provides lets. In the best case a credit desire is already present at this point. How much euro one would like to have from the bank for the loan?
The bank will now make an appropriate assessment of the loan request and the actual value of the property or. of the planned real estate make. It is important that the loan request leaves enough room for maneuver, but is not too lofty. If the actual value of the estimated property only 400.000 euros, it will be difficult to obtain a loan of 500.000 Euro to get. This is also due to the fact that the bank will take the land and the property as a security for the loan. Beyond that it concerns the question of already existing capital and the general financing.
During the examination, both the value of the new property and the proof of income will be taken into consideration. Additional collateral can be specified, if available. After that, the bank will make a financing offer, provided that the conditions are met. This offer is usually between 10 and 20 years and must then be transferred to a follow-up financing. This is also due to the fact that in most cases there is a fixed interest rate for the loan and after the expiration of the first loan the interest rate situation can be completely different.
What must be considered in construction financing?
Real estate financing is the crown of what banks and credit institutions provide to end users. The requirements of the banks are correspondingly high. Finally, not only the borrower commits himself, also the lender wants to be as sure as possible that the building project is paid off at the end and it does not come to complications. In case of doubt, the bank has the obligation to make it clear to an applicant that there is not enough capital or sufficient collateral available to realize the dream of owning a home.
In principle, attention should be paid to the level of interest rates when financing a construction project. In Germany and Europe, interest rates are currently lower than ever before and it remains to be seen whether interest rates will change in the following years. That means that the desire of the own home can be realized at present with quite small external costs. Nevertheless, there are sometimes sharp differences between banks. A comparison of the offers is therefore important, in order to be sure that the best conditions for the own project are found. The Internet offers arguably the best tool for checking out the various frameworks and looking for a bank where the best deal can be found.
When looking for the right loan, attention should be paid above all to the aspects of term and fixed interest rate. Although it is not certain whether the interest level will change much in the next few years, it is nevertheless an important aspect in the planning security around the real estate financing. A term as long as possible and a commitment of interest as long as possible guarantee that the monthly installment payments are constant. Only with the follow-up financing the topic becomes important therefore again.
In addition, when financing your own construction project, it is important to plan for sufficient leeway in the loan amount. It's significantly more difficult to get a second loan than to budget enough of a buffer for any additional costs right from the first application. This buffer can be used for the furnishings, but mainly serves any additional costs during construction, which can arise very quickly and present builders with financial problems. Accordingly, the loan application should be well and transparently formulated.
The most important tips for construction financing
In addition to good preparation in real estate financing, which includes both a clearly defined capital and credit planning, it is also a matter of finding the right partner. The comparisons already mentioned help to settle on a selection of possible banks that can help with the desire to finance their own four walls. However, the cheapest provider from the Internet is not always the service provider that fits one's needs. A personal contact and personal advice are preferable in case of doubt. After all, it is a project for life, there it needs a good contact, if it comes but once to disagreements.
If you want to have the highest possible chance for the success of your own project, you should also think about how to strengthen your own capital cover. Even if the banks are more willing to grant a loan on the subject of real estate loans already because of the security, they expect certain things from the applicants. This includes, for example, sufficient equity to cope with ancillary construction costs. About five percent of the total loan amount should be in the form of equity to maximize the chance of getting the loan approved. From it the handling fees in addition, the notary costs are paid approximately around the purchase or the building.
At the end it can be quite worthwhile itself, if one can be advised by a bank extensively with the own project. This not only increases the likelihood of a loan approval, but can also help to avoid mistakes that many other builders have made in the past.