A comparison of different lenders, for example using Construction Financing Calculator, is essential. Ultimately, moving into your own home should also provide long-term security. Conditions such as the interest rate or the repayment period are just some of the elements of construction financing that must be planned and calculated precisely.
What is construction financing?
The term construction financing or construction loan refers to the provision of a certain amount of money by a bank. Construction financing is used to build a property, including the acquisition of the land necessary for it. However, construction financing does not only consist of mortgages, but also equity. For this reason, construction financing is also called mixed financing designated. Own funds mainly include savings on construction savings contracts, as well as construction work carried out by oneself or by the previous owner of one's own property.
Which bank is the best for real estate financing?
Construction financing offers from banks can vary significantly. Most people interested in building get their first information about a real estate loan from their bank or savings bank. However, in many cases it is worth taking a look at other banks. If you also want to get an overview of the various mortgage loans and mortgage interest rates, a loan calculator will also help you in this case. After entering all the necessary data, you will receive by email construction financing offers tailored to you and your data so that you can compare them.
What is the current interest rate for construction financing?
The current best interest rate for construction financing is, on average, 3.5 percent, although in some cases it differs. Although construction interest rates have increased compared to recent years, they are still at a relatively low level.
It is difficult to make predictions. It is unclear whether interest rates will continue to rise or fall. In any case, you should now consider whether there will be any changes in the coming years that could affect your financial situation.
Not only does the choice of lender influence the interest rate, but also the term of the loan and the capital contributed. To get a better overview of your potential construction financing, including current interest rates, use a construction financing calculator. Here you can calculate the financing of your construction, determine amounts and refine interest rates.
Interest rates: debtor interest and effective interest rate
Interest rates depend, on the one hand, on the lending banks and, on the other, on the agreed conditions. they both play here Duration as well as that Loan amount and those provided Personal contributions, whether financially or through job performance, plays a role. It will also help you determine the interest that will actually be charged. Construction Financing Calculator.
Construction financing interest is made up of different types of interest.
- Debtor interest: The borrowing rate is the base interest rate that a bank charges when granting a loan.
- Effective interest rate or annual effective interest rate: This determines how high the actual total financial outlay of the loan will be, i.e. including other costs such as processing fees, account management fees and commitment interest.
Amortization and special amortization
The repayment is also calculated based on the effective annual interest rate. Repayment describes the repayment of the pure loan in installments. In addition, interest must also be returned.
Over the course of construction financing, which typically lasts 20 to 25 years, you initially pay a large portion of the interest before paying off the actual loan and therefore your home debt. The different types of amortization determine the term and are adjusted to the value of the property and the loan contracted on it, as well as your income. In addition, you usually have the option of so-called special refundwhere you can pay a larger sum in a single payment, regardless of the agreed monthly loan installments.
Also think about additional costs such as property transfer tax, notary fees and, where applicable, the broker's commission.
Who gets a construction loan?
To obtain financing for construction, certain requirements must be met, which the bank carefully checks in advance. This is not only for your bank's security, but also for your own. Ultimately, the dream of owning your own home should remain bankable in the long term and not pose a financial crisis. The following requirements must be met:
- Age of majority: In principle, the borrower must be of age and have registered residence in Germany.
- Good credit: Good credit is also necessary, which means mainly solvency and no negative entries in Schufa.
- Regular income required.
- Equity: Existing equity is also an advantage. To finance a building without own capital, its solvency must be extremely good, for example in the form of a very high income that is expected to be permanent.
How high should the income be?
Income level is less important when obtaining a construction loan. Rather, the loan amount depends on your income. Your pure net income determines how much of the property you can finance permanently. The general rule is that monthly construction loan payments no more than 40 percent of your net income should amount to. Calculate your discretionary income by subtracting all fixed costs from your take-home pay. You can now use a mortgage calculator to create the right deals for you, including different interest rates, based on your free net income.
How long does it take until construction financing is secured?
A binding funding commitment takes an average of two weeks. This is because after applying for the construction loan, the bank must review all the required and submitted documents and come up with a suitable financing plan. It will also take several days or even weeks until the loan is finally repaid. Depending on the type and amount of the loan, the entire process, from application to approval and disbursement of the construction loan, takes an average of two to three months, but in some cases it is a little faster. However, in many cases it takes a little longer.
To save waiting time, have your creditworthiness checked, gather documents about your assets and determine the value of the desired property.
Can I get a real estate loan without equity?
As already briefly mentioned, non-equity financing is quite atypical. The possibility still exists, specifically when the so-called Full financing is requested. If you have excellent solvency, i.e. a very good monthly income and an impeccable Schufa, this is possible in many banks. However, the loan amount required is also crucial. However, the price of full financing is usually a significantly higher interest rate, which is due, among other things, to the larger loan amount.
When is a loan rejected?
In some cases, loan applications are also rejected. The most common reason for rejection is negative entries in the Schufa, i.e. the general credit protection association. The Schufa score provides information on the extent to which an applicant is creditworthy. Negative entries, such as previous loans or outstanding debts, lower the score and decrease your chances of getting a construction loan. However, it is worth comparing several banks. Too low monthly income and a fixed-term employment contract can also lead to the rejection of the loan application. Ultimately, too high a loan requirement can also lead to rejection.