When should you apply for a loan?
If you are to build a new house or rebuild, you should have the funding in place, before the construction starts, and before you have signed a contract with the craftsmen.
The first item on the agenda is therefore to get an overview of the cost of the planned construction. Once you know how much construction costs will cost, you can study the financing options at the bank or mortgage bank. You can then ask for a loan offer, which is the basis for borrowing a loan for the financing of the building. It is a good idea to get more offers so you can compare and find the cheapest loan.
How do you finance a newly built house?
If you are to build a new house from scratch, the financing model is basically the same as if you are building or setting up a new bathroom in an existing home.
Based on a survey and architectural drawings, the mortgage credit institution prepares an assessment of the construction project and makes an offer for an advance loan (supplementary loan).
The advance can be combined with a building loan at the bank. You can borrow a maximum of 80 percent of the estimated commercial value of the mortgage bank, so the rest of the funding must be collected from the bank and from your own savings.
If you only want to borrow the undeveloped reason, you can borrow up to 40 percent of the commercial value of the mortgage bank.
What is a medium-term financing?
An intermediate funding covers the temporary financing requirement that you have from the start of construction to completion.
Medium funding can be organized in several different ways. The two most common methods are an advance loan (supplementary loan) at the mortgage bank or a building loan at the bank.
An advance loan is currently the most popular method, because the interest rate is lower than on a construction loan. But in general, the construction project depends on what is best paid. In both cases, the medium-term financing is granted on the basis of mortgages in the property and after an assessment of the construction project before construction starts.
What is an advance loan (supplementary loan)?
An advance loan (supplementary loan) is in principle a common mortgage loan that is admitted before construction has begun. The money is paid at once and is deposited on a blocked account at the bank and is paid directly to the craftsmen as construction progresses.
The loan is paid on the basis of an assessment of what the dwelling will be worth when the construction is completed. The assessment is prepared by an assessment officer from the mortgage credit institution before construction commences. The building must be completed and approved within two years from the loan being paid.
The mortgage bank will receive a mortgage in the property, but as the loan is paid before the construction is completed, the mortgage bank has no full collateral for the loan. Therefore, you require a guarantee from the bank.
The price of the guarantee from the bank depends on the size of the loan. Prices fluctuate between individual banks, but the rates below are reasonable for the market:
- If it turns out at the end of the building that the housing does not achieve the expected value because housing prices may have fallen in the meantime, the advance loan will in principle be reduced. In practice, however, this rule is managed flexibly, so you must consult the mortgage bank. If additional funding is required, another supplementary loan or bank loan will be included.
- The advantage of an advance loan (supplementary loan) is that you know from the outset the final payment on the mortgage. This will save you any cost of hedging. At the same time, the interest rate on an advance loan is typically lower than on a construction loan.
- The downside is that you pay both interest and repayments on the entire loan during the construction period. In addition, additional costs for establishing a supplementary loan or a mortgage, if the project is changed along the way becomes more expensive than planned.
What is a building loan?
A building loan is admitted to the bank and is an alternative to an advance loan (supplementary loan). The bank requires collateral for the loan through an ownership letter.
The building loan is recorded at the start of construction and typically acts as a cash credit, where you only pay interest on the part of the loan that you use. The interest rate is variable. Once the construction is completed, the overdraft facility is calculated and the final financing takes place, typically through a mortgage lending institution.
The advantage of a construction loan is a high degree of flexibility during the construction process. The downside is that you have to pay loan fees and registration fee twice, both on the construction loan and the subsequent mortgage loan. In addition, you do not know the final grant on the mortgage because the interest rate is variable and may change and become more expensive than initially assumed. And the value of the property may also have fallen when you have to raise your mortgage. If you wish to be sure of the future benefit, you need to spend money on a hedge of the planned mortgage loan.
What other loan options do you have?
By organizing the final financing of your construction project, you have more options that can either increase or decrease your overall performance on the loans in the home.
If you have several small mortgages in the home, consider collecting them in a new and bigger loan. By adjusting the maturity and repayment form of the new loan, you can to some extent decide how much you want to pay in monthly terms.
If you have a high-yield mortgage, you can often save money by repaying the loan at rate 100. Less loans typically do not pay off, but you collect your loans in connection with the financing of a construction project, may redeem you anyway pay off.
If you have sufficient profitability in the home, you can take the opportunity to replace mortgages or other high-yielding bank loans with a cheaper mortgage.
Offers from craftsmen
Based on the above information and based on the household economy and an assessment of the construction project, mortgage banks can calculate the maximum mortgage loan and offer bank loans for any remaining financing.
Please note, however, that the value of the housing after the construction project has not necessarily increased as much as the construction cost. In assessing, the mortgage credit institution or the bank is based on the estimated commercial value of the completed construction project.