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Verkaufsoptimierter Grundriss Detail

Building loan - which financing model is best?

Anyone who deals with building loans will encounter different loan models with different requirements. In addition to choosing the appropriate lender, it is primarily important to finalize the ideal building loan. The nominal and effective interest rates are only one of the criteria. You should examine a loan offer with equal care for flexible general conditions and the securing of favorable interest rates.

Floor plan for building loan
Building loan

The different types of building loans

The best-known model among real estate buyers and home builders is the annuity loan. Despite constant installments over the entire contract period, the repayment increases while the interest rate decreases. Banks even grant this building loan as a 110-percent financing to borrowers without any equity capital, given appropriate creditworthiness and security. Two other well-known and classic financing models are the building savings contract and the mortgage loan. The first requires a building savings contract, which also serves as collateral and provides you with equity. The building loan with mortgage transfers the land register debt to your property and is one of the loans often offered by building associations in cooperation with a life insurance policy. Are you planning a sustainable house? Then you can take advantage of a KfW building loan with particularly favorable interest rates. KfW grants these promotional loans under certain conditions, which include owning the property. KfW loans are granted irrespective of income if all conditions are met and are therefore also an opportunity for building owners who have lower incomes or earn their living independently.

What characterizes a good building loan

First and foremost, a good building loan is low-interest. Low monthly rates are also an advantage, even if they entail a longer term. In practice, it has been shown that construction loans with higher rates are more likely to lead to financial shortfalls than construction loans that are repaid with a lower sum. No one knows in advance for 10, 20 or 30 years what changes life has in store for them. A good financing for the house construction is therefore flexible. Temporary installment deferrals, a rate reduction without additional costs and annual unscheduled repayments on an "optional" basis are advantageous. If you can make unscheduled repayments, the term is shortened and you pay off the building loan more quickly. Also agree on a fixed interest rate for a period of 10 to 15 years. Since construction interest rates are currently at an all-time low, you can secure a particularly favorable home loan with this component of the contract.

What is the required level of financing?

In the past, 20 to 25 percent equity capital was required. Even today, you can apply for a building loan for the remaining amount and get a favorable offer by using your own capital. However, 100 and 110 percent financing is no longer uncommon and is granted by banks under certain conditions. Nevertheless, all additional construction costs should be paid out of your own budget and not through the building loan. If you have not saved any capital, check why you have not been able to do so so far. Lending is possible today in fast and different ways. To avoid excessive debt with accompanying possible repossession of your property, you should estimate your monetary possibilities authentically and weigh up any difficulties that may arise. The longer the term, the more extensive the financing amount and the higher the monthly burden, the more the risks increase during the repayment period of your building loan.

Who is a building loan suitable for?

In principle, financing home ownership requires that you have a secure income - ideally a double income in the family. The requirements increase with the increase in the amount you wish to borrow as a building loan. For the construction of small properties under 100,000 EUR, you can obtain favorable financing with a short term at adequate repayment rates with your own capital and own contribution, which is also evaluated as equity. If you decide to buy a high-priced modern house with a lot of living space, your liabilities to the bank will increase. A reputable financial and banking advisor will therefore give you a guideline up to which maximum amount a building loan would be possible in your case. All expenses exceeding this amount will lead to the rejection of the loan application.

Building loan currently more favorable than ever before

Building loans are suitable for home construction and for the purchase of a real estate. Weighing up the various financing models and comparing different offers is worthwhile. Take the time to thoroughly examine an offer and contact your advisor if any questions arise. Do not conclude a building loan that makes you feel uncomfortable. "How big a house can you afford?" an experienced bank advisor will calculate for you. Despite record low interest rates, the construction loan must fit you and your financial background.