This is exactly what many spouses have in mind. “Building Your Own House” sounds much more worthwhile than “buying” an apartment, even on credit (with a mortgage). But the realization of such a global dream is not for everyone and it is not only about repaying the loan itself.
Building a home on credit is a relatively long-lasting and meticulous job that can take many years of life for your future owner. But we can assure you that the result of such construction surpasses all expectations . It will never be the result of a multi-story apartment mortgage.
Construction loan terms
First of all, it should be noted that such loans (for housing construction) are only granted by a few banks, and if such an offer is included in the list of programs of a particular creditor, that bank really deserves trust and respect . And while it is difficult to call a construction loan a “mortgage,” it, like mortgage lending, obliges the borrower to provide a mortgage in the form of real estate.
Second, a construction loan requires the borrower to pay extra: insurance, valuation, down payment, commission, etc. All of these construction loan costs need to be considered right from the start, before you apply. On the other hand, it is not profitable for banks to set annual interest rates that are too high nowadays, because there are not so many “willing” people to build home loans. Banks simply want to provide for themselves and get a full guarantee that the funds issued will be repaid. It is for this reason that they carefully examine each potential borrower and his plans for a home loan.
The biggest benefit of a home construction loan is that as soon as it is gradually built, it will be able to fulfill its collateral function on its own.
If you decide to apply for a building loan, but this building will become a garage, sauna or chalet, it is better to give up such a large offer and try to get a regular consumer loan with a short repayment term. This way, you will pay far less (thanks to a minimal refund period) and will not waste time collecting the document package.
What a pledge can be
According to the statistics, the loan for the construction of a new home is relatively realistic, but it will not exceed 85% of the estimated value of the pledge. And this rate is relatively high among existing home loans. This number is offered by the financial association Luminor, a large part of which belongs to the group.
Home loan is no different from its competitors. But this bank offers to buy credit not only for housing, but also for the plot of land on which the building will later be built. In any case, any such loan will require a security. The more liquid the pledge, the higher the loan amount.
What collateral the client can offer the bank:
- already built house,
- plot of land,
- summer house,
- garage .
But the first two points will undoubtedly make the bank more attractive and allow you to receive a large amount of cash in the form of credit. However, they also have to meet specific bank requirements. If you only need a small amount of finishing touches, you will need to pawn your car and finish the work.
Some form of construction loan is profitable
If the mortgage loan for construction, where all the money is paid out all at once, is compared to a mortgage loan with staggered costs, then the second loan option will prove to be the most advantageous. Why? In the first case, you will be required to make a monthly installment payment based on the full amount of your credit, which will make the payments large and cumbersome for your budget.
In the case of a credit in several installments, each installment covers a certain amount of work done and is easier to make: the monthly installment is relatively smaller. Why this happens: First of all, the interest rate is calculated only for the part of the money that was spent in a certain period. Second, the payments calculated to repay the principal amount of the loan itself are much less than in the case of a normal mortgage.
How to get a construction loan
First of all, the borrower must collect all necessary information about himself and documents to confirm this information, such as:
- passport or ID card,
- completed loan application form,
- certificate of valuation of collateral property,
- planned construction documents : permit and technical passport,
- a bank statement for the last half year if you are not a customer of that bank.
- Once all the documents have been collected and you have determined the amount of credit you need, you can get a rough estimate of how much money you will need to pay off your debt each month. Finding these numbers is relatively easy: almost every internet bank is equipped with a convenient credit calculator. All you have to do is enter the required amounts (repayment period and amount of credit) and you will then receive a monthly payment amount.
- Together with the specialists of the selected creditor, you can quickly complete and receive the missing documents required for construction.
- Negotiation of the credit agreement , submission of all documents and certificates and signing of the agreement.
- Insurance policy design.
- Pledge registration.
Construction credit is becoming more and more in demand . The benefits of this product have already been appreciated by many. Along with favorable terms, borrowers are convinced of the comfort of living in their own home rather than a small apartment without a backyard and other ancillary facilities. Now loans for construction have become much more accessible than before. All the borrower has to do is think of the design of their home, collect the documents and hire a construction team, but the bank will take care of the regular financing of all work as well as insurance.