Important to the construction loan
- Calculate additional costs
Apart from the purchase price of the property, you should also include the ancillary costs in the amount of credit that will be incurred. These include, for example, land transfer tax and brokerage fees.
- Check conveyor
Some state subsidies could also apply in your case: For example, the Kreditanstalt für Wiederaufbau offers subsidies for the purchase or construction of residential real estate, in particular at so-called Intrasavings bank Efficiency Houses.
- Compare building loans
Before you decide on an offer, you should have obtained offers from various banks. Only by this comparison, you can judge later, whether your building loan was cheap.
Construction loans are predominantly long-term annuity loans, which serve the purpose of building real estate or rescheduling. The existing household budget limits the amount of a construction loan. You can get cheap offers for the right loan via a credit comparison.
How to find the right building loan
The term construction loan is used as a synonym for mortgage lending. In contrast to construction loans, mortgage lending also refers to the total financing of a property from own funds and outside capital.
In its basic form, the home loan is a long-term building loan, which is secured by a land charge registered in the land register (mainly with a mortgage, sometimes with a mortgage). Mortgages as interim financing serve the bridging of time, until the conditions for the disbursement of a long-term loan are present or required own funds are available. Long-term construction loans are usually given as a so-called annuity loan. In the case of an annuity loan, the borrower pays a steady rate (for example, monthly or quarterly) composed of interest and principal. As repayment proceeds, the interest components of the credit installment decrease while the repayment installment increases.
The financing purpose of a home construction loan is the construction or renovation of buildings. Also, the rescheduling of an existing loan by a new building loan or follow-up financing are possible as a purpose. Construction loans can be taken for private or commercial purposes.
- A home loan is used to finance residential real estate that is either used or rented by the owner. Borrower is the private owner of a property.
- Commercial building loans finance commercial and residential buildings, provided these belong to a business asset.
Mortgage lending generally has a comparatively low credit risk due to the hedging of the land register. Therefore, the financing bank can grant particularly favorable lending rates for mortgage lending. A construction loan may therefore only be used for the purposes set out in the loan agreement.
Misuse of the loan funds for other purposes constitutes a punishable fraud (§ 263 StGB), which entitles the credit institution to an extraordinary termination of the loan agreement and to the immediate recovery of the disbursed loan.
Possible amount of a construction loan
Fixed upper and lower limits for a construction loan do not exist. The maximum loan amount is based on the value of the property to be created and on the income and assets of the borrower. It is crucial that the loan installments that are often due for many years in a construction loan do not exceed the credit applicant’s capacity to pay.
A home loan should, however, also reach a certain minimum amount if possible in order to avoid disproportionate costs, for example, for the land charge and loan processing. Credit institutions often charge interest surcharges for smaller construction loans. With a financing requirement of up to € 50,000 you should therefore consider whether a flexible and cost-effective loan is preferable to a home loan.
Usual transit times
A distinction must be made between the total term of a construction loan and the selected fixed interest period. For example, the total maturity over which the loan is to be repaid can be 30 years. Notwithstanding this, as a borrower you can agree a ten-year fixed-interest period upon conclusion of the loan agreement in order to secure the currently favorable interest rates for a longer period of time. At the end of the first fixed-interest period, you can either repay the loan or negotiate a second fixed-interest period at the then applicable interest conditions.
As a matter of principle, you should always strive for the fastest possible debt relief. However, loan repayment terms of 40 and more years are not uncommon due to the sums of credit that are often high in mortgage lending. The chosen repayment term crucially depends on the amount of credit that a borrower can provide on a permanent basis.
With low lending rates, annuity loans usually have a particularly long loan term. The reason for this is that the annuity rate is composed of principal and interest. The easiest way to illustrate this is by means of an example: A construction loan of more than € 100,000 earns interest at 1.3 percent and is redeemed at one percent per annum. The annual annuity (1.3 percent interest and one percent repayment) is therefore 2.3 percent, the monthly loan installment at 191.67 euros. The repayment term is 64.2 years! If the nominal interest rate were four percent instead, the annual annuity would be five percent. With a monthly installment of € 416.67, the loan repayment term is “only” 40.33 years, as the higher interest rates lead to faster repayments.
Higher repayment performance can be useful
If you, as a borrower, do not want to service your loan at a high retirement age, it is advisable to agree on a significantly higher repayment performance (at least two or three percent) right from the start, especially with low lending rates.
Find the appropriate fixed interest period
The selection of the fixed interest period depends in particular on the anticipated interest rate trend on the capital market in the future.
- If you assume as a borrower that interest rates will rise in the future and you therefore have to conclude a follow-up loan to higher lending rates after expiry of the first fixed-interest period, you should opt for the longest possible fixed-interest period.
- On the other hand, if you expect falling lending rates, shorter fixed interest periods are recommended.
- Construction loan interest rates averaged around six to seven percent over the last few decades (peak in September 1983: over 12 percent). In an average interest rate environment, fixed interest periods of five to ten years were common.
- Very low mortgage rates (at the beginning of 2015: around one percent) should tend to benefit borrowers by agreeing on long-term fixed interest rates of at least ten years. Some banks even offer 30-year fixed interest rates.
In addition, you can adjust the fixed interest period (at least in respect of part of the total loan) to one-off income that you expect in the coming years and that will allow you to repay the loan by special repayment.
Beware of interest rate fixation
With low lending rates, you will not be tempted by exceptionally long loan terms due to the current low loan installment. Keep in mind that if you receive a follow-up loan at significantly higher interest rates at the end of the first fixed-interest period, your financial burden may increase significantly. Arrange for an annual minimum annuity of at least two or three percent to pay off quickly.
Interest rate hedging through a forward loan
If you currently want to secure low interest rates in the long term but are currently still bound by a fixed interest period, you can take out a so-called forward loan.
With a forward loan, you secure the interest rate on a construction loan, which is paid out at an agreed later date, based on the current interest rate level. For example, at the end of your current fixed interest period or at the time of a planned future property. For interest rate hedging, the bank charges you an interest charge (depending on the length of the forward period). By concluding a forward loan, you also undertake legally binding acceptance of the loan on the agreed date. Forward loans can be completed up to 60 months before the planned payout date.
Compare building loans worthwhile
First, determine the monthly budget available to you to operate a construction loan. For this purpose, our monthly load capacity or household calculator tools are available to give you a good overview of your budget surplus. Consider also a cash reserve and make sure that you do not have to restrict yourself too much when taking out home loan.
Then compare the loan offers from various banks and financing experts. Decisive in particular is the annual percentage rate of charge. FinanceScout24.de allows you to obtain a non-binding offer for a construction loan. The following information is required for this:
- The type of financing (new or follow-up financing)
- Purchase price, purchase costs and equity
- Expected financing date
- Type of use (own or third-party use of the property)
- Your employment (eg employed or self-employed)
- Your household net income
- Your personal contact information
Your private data is only needed to calculate the cheapest interest rate.
In addition, you can use the comparison calculator to provide additional information and special requests to the selected financing partner. You will receive information about the most favorable construction loan according to your specifications.
When applying for a homebuilding loan, certain documents must be submitted. Depending on the lender, the requirements may differ. The following documents are usual:
- Identity card (possibly legitimacy check by post- ID procedure )
- Salary statements (mostly the last three months)
- tax assessment
The self-employed also provide balance sheets, business evaluations and, if available, a certificate of incorporation. In addition, the bank needs information about the property to be financed:
- building plans
- building permit
- insurance certificates
The processing time until the loan decision varies between the individual banks. Mostly, a loan decision is made on a standardized home loan in three to five working days. However, the period between the application for a loan and the decision to lend depends on possible specificities of the individual case. An extension of the procedure may include any necessary inquiries from the bank or missing or incomplete documents.
A building loan is earmarked. In order to ensure compliance with the agreed earmarking, the bank transfers funds directly to the contracted construction company or to craftsmen on presentation of construction status reports as well as proof of use or invoices by the borrower.
Commitment and ancillary costs
At the beginning of the loan term, the financing bank must provide the loan funds. The Bank incurs costs through tied and unused capital. As a result, the credit institution usually calculates a provisioning interest on the parts of the loan that have not yet been disbursed three or six months after the start of the repayment term. Depending on the bank, the commitment rates amount to approximately 0.2 to 0.25 per cent per month (2.4 to 3 per cent annually). Further costs for application processing and account management are usually not calculated. However, there are fees for the valuation of the property to be leased.
For leased real estate, a number of expenses in the income tax return may be recognized as tax deductible. These include, for example, all ancillary labor costs, distance payments for furnishings and old building repairs. In most cases, the tax offices also recognize the debit interest that arises on the occasion of real estate construction as income-related expenses. In the case of an owner-occupied building, the assertion of costs is only permissible in individual cases, such as renovation costs as extraordinary charges.
Additional costs with which you should expect
In addition to the purchase price of a property, the following additional costs must be taken into account in the financing plan:
- Property transfer tax (3.5 to 6 percent of the purchase price, depending on the state)
- Brokerage fees (3 to 6 percent)
- Costs for notary and land registry office (about 2 percent)
- Cost of planning by an architect (in new building)
- Costs for insurance (owner’s liability insurance, homeowners insurance, home insurance, elementary insurance)
- You should also reserve a financial reserve for the purchase of home furnishings
How much equity is needed for a home loan?
Often a minimum of 20 percent equity is recommended. If you contribute equity to your mortgage lending, your interest burden as well as the interest rate risk will be reduced at the end of the fixed interest period. You also become faster debt free. The use of equity also reduces the credit risk of the financing bank, which can therefore offer you a slightly lower lending rate.
Loans without equity are only recommended in individual cases. If you do not contribute equity, you will have to expect a higher lending rate. However, it is also possible to provide additional collateral such as land charges on other plots of land, the pledging of securities or the granting of a valuable guarantee by third parties.
The state provides financial support to builders in various forms. Support programs of the Kreditanstalt für Wiederaufbau support, for example:
- For the purchase or construction of residential real estate, in particular for so-called Intrasavings bank Efficiency Houses
- On acquisition of an energetically refurbished old building
- When buying or converting an age-appropriate residential building
A government-subsidized “Wohn-Riester” contract can also help you finance your property.
Construction loan without Private credit?
A construction loan without Private credit is a loan that is paid out without a credit check of the borrowing by request to the Private credit. However, loans without Private credit usually incur significantly higher costs. Pay attention to the seriousness of providers of construction loans without Private credit.Our dubious providers often recognize you by the following criteria:
- No collateral is required
- You will be asked to pay an upfront fee regardless of a positive credit decision
- The disclosure of your data for advertising purposes is not excluded
Replacing construction loan: Early repayment
At the end of a fixed interest period, the borrower may replace part or all of the construction loan. In addition, the borrower may make special payments under the contractual redemption rights.
Otherwise, premature repayment within a fixed interest period is generally not possible. Within a fixed interest period, the borrower can assert a “legitimate interest” to terminate the loan only in exceptional cases (§ 490 paragraph 2 BGB). This is the case, for example, with relocation, over-indebtedness or unemployment. In addition, terminable or traceable are:
- Land registry not (anymore) secured construction loans,
- Variable rate mortgages and
- Building savings loan (according to the terms and conditions for home savings contracts).
If there is a statutory or contractual reason for termination, there are basically no costs for a termination.
Repayment after revocation
Loan agreements may be revoked within 14 days after conclusion of the contract (§§ 495, 335 BGB). In the case of a faulty declaration of revocation in the construction loan agreement, there is a so-called “perpetual right of revocation” even years after a contract has been concluded.
If a loan is redeemed without any statutory or contractual right to premature redemption, the Bank may charge a prepayment penalty, including a reasonable processing fee, if it incurs interest rate damage.
Follow-up financing for the construction loan
After expiry of a fixed interest period, follow-up financing in the amount of the remaining debt is concluded. The borrower can carry out the follow-up financing with his previously lending bank, but can also reschedule to another bank, which offers more favorable terms.