The dream of owning a home is dreamed by many. But the fewest have the necessary financial resources. However, if you don't just want to dream, but still want to realize your dream property, you need rock-solid construction financing. However, this must be tailored to the individual needs of the building owners. There are many questions to clarify in relation to a possible construction financing. We provide answers to the most important ones.
Without own funds it does not work
No construction financing can get by without own funds. These strike in an amount of about 20 percent of the total construction costs. These personal funds can also consist of personal contributions. For this, it is helpful to have a skilled trade or to have appropriate professionals available. Realistically seen about 5 to 10 per cent of the own contribution for the construction financing are recognized. As your own funds, you can also bring in a building savings contract if it is already ready for allocation. He must have reached the minimum balance and the minimum savings period. However, the entire sum does not have to be included in the construction financing. It can also be only a part of it.
But also money from the own fortune is counted to the own means. This can:
- overnight and time deposits
- Cash
- Securities
- life insurance policies paid out
- Subsidies
- Private loans from family and friends
- an already existing property
- a property without encumbrances
- Valuable items such as coins, paintings or precious metals
Do not forget the additional costs
One may not neglect the additional expenses with the building or purchase of a real estate. They account for 10.1 percent of the cost. Often, these costs must be paid from your own funds and must not burden the building loan. Many banks stipulate that the money provided may only be spent on the property itself. The earmarking of the loan is very tight. Any additional expenses must be paid by the customer. The reason is quite simply that the bank would not be able to recover the sums for the ancillary costs if the borrower were to become insolvent, as there is no hedging via the property value.
In general, the ancillary costs for the purchase of real estate depend on the value of the property. The following incidental costs are incurred when purchasing real estate:
- Costs for entry in the land register (1.1 percent)
- the real estate transfer tax (3.5 percent)
- brokerage fees (maximum 4 percent)
- The construction and settlement costs for the purchase agreement (about 1 to 3 percent).
However, the total costs can also vary in terms of amount. If, for example, you buy a property without a real estate agent, these costs are already eliminated. If a lien is registered for the bank, additional costs will be incurred.
Stumbling blocks in the purchase of real estate
Anyone buying or building a home for themselves and their family can save themselves a lot of hassle and stress if they know the stumbling blocks. So there is no rude awakening. When buying real estate, it is important to inspect the property thoroughly. Generally, every seller is obliged to disclose defects, but it is better not to rely on that. In case of doubt, an expert can be consulted during the appraisal process. But not only the building substance should be important for a prospective buyer, but also the building plans. The important thing to consider in this regard is whether there are any additions and whether there is a building permit for them.
Building authorities can also demand subsequent removal if no building permit has been obtained. A look at the land register is also a must. Closed agreements remain also if the owner changes. This includes, for example, a right of residence or a right of way. When signing the purchase agreement, it is advisable to consult an expert. In any case, it is necessary to clarify what should happen if the property can not be occupied at the specified time.
It would also be interesting to know what happens if circumstances arise that would entitle the customer to withdraw from the purchase contract or at least lead to a reduction in the purchase price. Liability issues need to be addressed in the event of legal or material defects. Guarantees and warranty claims from the companies that built or repaired the property are to be transferred. Especially in the case of prefabricated houses, some manufacturers usually give guarantees of 30 years on the basic construction.
Cost traps when building a home
The dream of owning your own home quickly shatters if you miscalculate just once. Cost traps when building a house can so quickly lead to financial ruin. So there are also already in the construction financing and in the purchase of land some cost traps. Who has a construction financing with low interest rates in the pocket, rejoices. But this is often too early to rejoice, after all, when the fixed interest rate expires, the construction loan is usually not yet paid off. In the subsequent financing, the costs then explode because the interest rate may have risen in the meantime. Therefore, you should consider reducing this risk in advance with a long fixed-interest period. The repayment rate must also be at affordable levels.
But even the financing itself contains pitfalls. Construction projects often become significantly more expensive than originally planned. Therefore, it is advisable to have a financial buffer. In the other case, builders have to ask the financing bank for additional financing, and that can be expensive. In general, for construction financing, you should choose a long term in terms of the fixed interest rate, and the amount of the loan must be calculated generously. Especially today it is important to benefit from the low interest rates as long as possible.
In order to save on rent, builders often want to move into their new home as quickly as possible. Therefore it should go fast with the completion. This leads to time pressure, and this in turn leads to poor construction work. Damage and delays are the result. Further financial burdens are pending. In this context, it is recommended to cooperate with independent building experts. It will cost you money at first, but it's worth the investment as you can save yourself additional costs due to botched construction.
But not only the actual house construction can cause additional costs. The design of the outdoor area, for example, can also swallow up vast sums of money. Who does not want to arrange this area alone, which must count on 40 to 100 euro per square meter. In addition to this, the construction of a terrace and the driveways, if they are to be paved. There is also not for free.
Interest rate – more favorable than ever
The loan interest rates offered by the banks and fixed in the contracts are based on the fixed key interest rate. Banks lend money to each other at this reference interest rate. As a result, it has a great influence on the amount of the loan installments to be paid. In this context, the level of lending rates depends on various factors:
- fixed or variable interest rate
- the required loan amount
- the credit period
- the interest rate.
Effective interest rate versus borrowing rate
The nominal calculation basis for the repayment of the construction financing is the debit interest rate. The effective interest rate is higher than the debit interest rate because it includes fees, expenses and credit costs. Currently, the percentage rate for loan interest is very low if you choose a variable interest rate.
The choice between variable and fixed interest rates
Especially the interest rate has an important influence on the amount of the installments. In the case of fixed interest, the interest rate is fixed once for the entire term of the loan. Even if the interest rate falls or rises, the interest rate always remains the same.
In the case of variable interest, the interest rate is adjusted at fixed intervals. If the interest rate level falls, you benefit from more favorable interest rates. But if it rises, the interest on the loan also becomes higher. In the case of variable interest rates, the interest rate is calculated from the reference interest rate, such as EURIBOR, and the interest margin.
The interest margin is a markup charged by the lending bank. In the case of a variable interest rate, it is possible to hedge an interest rate cap over a certain period of time. The security can be provided by a building society loan or other special loans from the banks. This is always recommended if a large increase in interest rates is to be expected.
The EURIBOR as a basis
The most commonly used reference interest rate is EURIBOR. It is the basis for the amount of the loan interest rates. This is the interest rate at which European banks are willing to lend money to each other. The EURIBOR can vary, because it depends on how long the banks lend each other the money.
This can involve periods of between three, six or twelve months. The EURIBOR is calculated on a daily basis. Since the beginning of 2012, the trend of EURIBOR has been downward. At this time, the European Central Bank has lowered the key interest rate to zero. In the meantime, the EURIBOR has even reached negative territory. For construction financing, this means that loan interest rates are currently very favorable. Banks are obliged to pass on this negative interest rate to customers.