Financing the construction of your dream home is a complex process. It's not just about finding the best possible terms on your loan. The topic of construction financing will possibly accompany you for decades and should definitely be aligned with your life planning. In addition, there are important details such as unscheduled repayment, terms, different repayment and loan forms – and much more. We report about it. All contributions are based on individual and long-term experience of our authors and do not replace legal and professional advice.
It is not for nothing that there is a high demand for advice in this line of business among loan seekers, because construction financing is quite complex and there are some important details that you as a customer can decide on or. need.
Determine financing requirements and find the right real estate loan
Before you start a construction financing, you should determine your financing needs. This is usually derived from the purchase price for the house you have chosen. In addition, there may be the purchase or ancillary construction costs, which should by no means be underestimated. If you have equity, this naturally reduces your borrowing requirements, i.e. the amount of real estate loan you need. The following example shows how you can easily and quickly determine your financing needs:
- Purchase price of the property: 175.000 euros
- Additional purchase costs: 25.000 euros
- Financing requirements: 200.000 euros
- Equity: 30.000 Euro
- Borrowing requirement: 170.000 Euro
So in this case you need a real estate loan in the amount of 170.000 euros from the bank. Construction financing does not always consist of only one loan, but often it even makes sense to combine several loans with each other.
So the second step is also to know the different types of loans that can basically be used in a construction financing. Then you can decide which loans fit best.
Find the right construction financing
What is construction financing?
Construction financing is a long-term loan used to finance a property. In Germany, it is also known as a construction loan or real estate loan. Within the last few years, the interest rates charged for construction financing have fallen significantly. One reason for this is the low prime rate, which is kept at a record low by the European Central Bank.
The number of properties sold is still on a clear upward trend. After this trend began to emerge in 2010, it intensified in 2011. In the first six months of 2010 alone, official figures show that 27.9 percent more homes were approved in Germany than in the same period last year. According to Immonet, single-family and two-family homes were in particularly high demand.
Due to the increasing demand, the construction price index is further boosted. It increased by a total of 2.9 percent in August 2011 with regard to conventionally built new construction. Although building costs have risen in general, Germans are apparently still not deterred by this. Main argument is the favorable building money. Construction financing is currently more favorable than it has been for a long time. In addition, it cannot be assumed that this low price level will continue to be maintained, as is the case with construction money.
Characteristics of a construction loan
The construction loan is a widely known form of financing. It is clearly distinguished from the personal loan. Thus, it can be used as financing exclusively in connection with construction measures, as well as the purchase of real estate. Without a corresponding property, approval of the loan is not possible. A typical feature of construction financing are the long terms. They cover up to 35 years. The borrower is subject to fixed interest rates for part of this period. Accordingly, the interest rates are neither lowered nor raised. This is intended to give builders and property owners planning security.
The influence of the equity capital
With the building financing the own capital funds play an important role. Many banks expect an equity ratio of 20 or 30 percent before approving a construction loan. At present the interest, which is estimated for building loans, is unusually favorable. Nevertheless, the equity ratio also has an impact on costs. The higher the equity ratio, the lower the loan amount required. In addition, the higher the equity ratio, the better the conditions offered by the banks. If property buyers have an equity ratio of 50 percent, for example, they can negotiate much better than is the case with bank customers, where the equity ratio is only 20 percent.
An important point of a construction financing is the fixed interest rate. Fixed-interest periods of 5 to 15 years are typical for construction loans. Frequently, fixed-interest periods of 10 years are granted. However, there are also banks that work with longer time windows of up to 20 years. During this period, the interest rate is always constant. In most construction financing, the fixed interest rate is shorter than the term of the loan. In this case, however, it is necessary to renegotiate with the bank. Borrowers should carefully compare interest rates. Even the smallest differences of about a tenth of a percent can increase the residual debt by a considerable amount. Various factors have an effect on the interest rate.
It includes:
- Equity ratio
- Property value
- Creditworthiness of the borrower.
What types of loans are available in the context of construction financing?
In the case of construction loans, a distinction can be made between different forms of financing that are available for the realization of the construction project. The best-known form is the annuity loan. In common parlance, it is referred to as a construction loan. With the annuity loan, the monthly installments are made up of interest and repayment portions. The repayment portion is deducted monthly from the loan amount drawn down. Thus, with the term of the loan, the interest to be paid decreases. However, the installments remain the same until the end of the term, so that the redemption portion increases successively.
In principle, construction financing can also be offered as an amortizing loan. In this case the redemption portion remains stable during the entire term. However, the interest portion continues to decrease. At the same time, the monthly installments decrease, as well as the burden that the borrower must cover. The third form of construction financing is formed by the bullet construction loan. This is also known in Germany as a maturity loan.
With the maturity loan, borrowers pay only the interest that accrues monthly throughout the term of the loan. The loan amount is not repaid until the end of the term in the form of a lump sum payment. To ensure this, construction financing is often combined with endowment life insurance.
The cap loan forms a special form of construction financing. In this construction loan, the interest rates are not fixed. The bank works with a variable interest rate. However, the interest rate is fixed at its maximum level, so that interest rates cannot increase immeasurably. Borrowers can benefit from various interest rate reductions with this offer. The adjustment of the loan interest is usually monthly or, for example, always at intervals of six months. If the interest rate decreases with the cap loan, the payment burden is reduced for the builder.
- Annuity loan
- Repayment loans (incl. Full repayment loan)
- Maturity loan
- KfW loan
- Insurance loan
- Building society loan
- Foreign currency loan
We would like to take a closer look at these different types of loans in the following section, so that you know the differences and can assess which financing option best suits your construction financing needs.
Annuity loan
The annuity loan is the basis for most construction financing, as it is the classic real estate loan that banks grant. So, if you are already using a real estate loan and don't know what type of loan it is, you will probably use an annuity loan. This real estate loan is characterized by the fact that the loan installment always remains identical during the fixed interest period and consists of repayment and interest.
However, since the repayment already made is offset on a monthly or quarterly basis and you then only pay the interest on the remaining debt, the proportion of interest is reduced further and further. It follows that the proportion of repayment in the monthly installment gradually increases.
Amortizing loan
A not quite so frequently offered and chosen real estate loan is the amortizing loan. The difference to the annuity loan is that the repayment share of the loan installment does not change, but always remains the same, for example at four percent. Nevertheless, there is also with the amortizing loan a repayment settlement. Since the repayment remains the same, but the interest rate decreases due to offsetting, it is typical for the amortizing loan that the monthly loan installment continues to decrease.
Therefore, this type of real estate loan is mainly for people who want a lower monthly burden as the term progresses, for example, later retirees who still have to pay off the rest of the loan during the first years of retirement.
By the way, a special variant of the amortization loan is the full amortization loan. In this case, all the previously mentioned characteristics of the amortizing loan apply and in addition, the full repayment loan is characterized by the fact that there is no difference between the fixed interest rate period and the term of the loan. This means that the loan has a term of 20 years, for example, and the interest is then also fixed for 20 years.
Normally, on the other hand, the term of the ordinary amortizing loan and the annuity loan is almost always longer than the fixed interest period, which is often between five and 15 years. The full amortization loan offers optimal interest rate security, since the borrower does not need any follow-up financing and therefore there is no later risk of interest rate changes.
Term loan
The bullet loan is a real estate loan, which is currently only relatively rarely used. The reason for this is that the loan is usually linked to an endowment insurance policy, which has become much less attractive in recent years because the guaranteed interest rate and profit participation have fallen almost continuously. The distinctive feature of a bullet loan is that repayment is not made monthly through the loan installment, as is the case with an annuity and amortizing loan.
Instead, repayment is effectively postponed, namely to the maturity date. However, the customer must then repay the entire loan amount in one go. To make this possible, an endowment insurance policy is usually taken out at the same time as the loan, so that the final loan can be repaid with the later disbursement sum.
KfW loan
The KfW loan is not a typical real estate loan, but a loan that the KfW Bank grants for various purposes. There are a number of development programs in the course of which the KfW provides certain loans, which are then collectively referred to as KfW loans. The various loans are aimed in particular at the following groups of people:
- Students
- Building owners
- Real estate buyer
- Renovators
- Energy saver
You have a particularly good chance of obtaining a KfW loan if, for example, you want to buy a new single-family home and make energy improvements or if it is already a passive house. Then you can benefit not only from a favorable KfW loan, but sometimes also from a repayment subsidy.
Insurance loans
Meanwhile, not only banks issue real estate loans, but some insurance companies have also been in this market for years. For example, a so-called insurance loan is granted, which can be used in the context of real estate financing. As a rule, an insurance loan is a long-term loan in which the installment consists of repayment and interest. The special feature is that the insurance loan usually has to be secured, rarely with a land charge like "normal" mortgage loans, but primarily with an endowment life insurance policy.
Here, the surrender value is usually used as collateral for the loan. In most cases, the insurance loan is also a bullet loan. The customer therefore pays only the interest on the loan in the monthly installments, makes additional payments into the life insurance policy and then repays the loan later with the sum paid out by the life insurance policy. It is worthwhile to have such an insurance loan especially if you rent out your property, because then you may be able to claim tax benefits.
Home loan
The building society loan is one of the loans that are very often integrated into real estate financing. However, you cannot take out the building society loan spontaneously, as is the case with an annuity, amortization or even a bullet loan.
Instead, you must have paid into a home savings contract for several years before it is ready for allocation and you can then also draw down the home savings loan. The great advantage of this type of loan is the very favorable interest rates and the interest rate security, because the interest rate is already known when the building savings contract is concluded and may not be changed by the building society.
Foreign currency loan
A special loan that can sometimes also be included in real estate financing is the foreign currency loan. The foreign currency loan is not paid out in euros, but in another currency, for example in US dollars. The repayment must then also be made later in this foreign currency. These are mostly bullet loans, which on the one hand offer the chance of currency gains, but on the other hand also involve the risk of currency losses.
It depends crucially on how the exchange rate of the two currencies involved, in the example on the one hand the euro and on the other hand the US dollar, develops between taking out the loan and the maturity date. If the value of the dollar has fallen from $1.23 to $1.34, for example, the borrower makes currency gains; otherwise, he suffers currency losses, meaning he must repay a higher loan amount than he received.
Your construction financing at favorable conditions
After the loan choice: Fixed interest rate or variable interest rate?
When financing real estate, you have to make a few decisions. This includes not only the choice of the appropriate loan types. For example, if you have found an interesting offer for an annuity loan, you must look at the 2. Step decide whether you want a fixed interest rate or prefer to choose a loan with a variable interest rate. But what does this decision depend on?
Basically, it is quite simple: The fixed interest rate is always advisable when the current loan interest rates are relatively low, and/or rising interest rates on the market are to be expected. Incidentally, the decision was rarely as easy as this year (2019), because more favorable construction interest rates than now, you will probably hardly find in the future. Therefore, the recommendation of almost all experts is that borrowers should secure the current interest rates for as long as possible.
Usually, most banks offer the following fixed-interest periods:
Sometimes even 20 years fixed interest rate is possible or you can even use a full amortization loan mentioned before. By the way, the variable interest building loan is only recommended if the interest rates are quite high and therefore it can be assumed that the building interest rates will fall in the next few years. Then you will benefit from the fact that the bank will lower the interest rate on your loan.
How high are the construction interest rates and what do they depend on??
One of the most important questions for almost all borrowers who carry out real estate financing is how high the construction interest rates are. As already mentioned several times, we are currently (May 2022) in an absolute low-interest phase, which is very pleasing for loan seekers. The most favorable real estate loans are in the range of 0.79 percent per year in terms of interest rates. However, there are some influencing factors that can affect the interest rate. In particular, these are the following factors:
- Loan amount
- Term or. Duration of the fixed interest rate
- Equity
- Collateral
- Creditworthiness of the borrower
The general interest rate level is also oriented in the construction interest rates primarily to the ECB prime rate, which is known to be 0.00 percent. In addition, the interest rate is initially dependent on the selected fixed interest rate. Of course, the interest rate is somewhat higher for a fixed interest rate of 15 years than for 10 or 5 years. However, you have an interest rate security that extends over many years, so that it is definitely "worthwhile" to pay a somewhat higher interest rate.
In addition to the equity ratio and the collateralization of the real estate loan, which is usually provided by a first-ranking land charge, the customer's creditworthiness is certainly the biggest influencing factor on the interest rate that the bank offers to the loan seeker. In particular, customers with a very good credit rating and a corresponding equity ratio of at least 20 percent have in practice the best chances of being offered the really very favorable construction interest rates starting at 0.79 percent. Who creditworthiness, however, is not quite so good, which also pays once interest rates of 1.5 or more than two percent, despite low-interest phase.
The lenders make the creditworthiness primarily on what is in the Schufa data or. characteristics is stored and what kind of income the customer achieves resp. how high this is. The Schufa should absolutely not contain any negative features, because otherwise it is very unlikely that you will receive a loan. Even the special loans without Schufa are usually not granted with such high loan amounts that they would be enough to finance a house purchase. When it comes to income, banks definitely favor the following characteristics:
- Income from dependent employment
- At least two years already with the current employer
- Indefinite contract, of course, outside the probationary period
In addition, the income must of course be sufficiently high so that, after deducting all fixed costs, there is enough disposable income from which you can pay the loan installment. Self-employed people and freelancers often have a hard time getting a real estate loan from the banks. Here, from the point of view of many lenders, there is a lack of secure income, even if, of course, salaried employees can also be terminated at relatively short notice in the reason. Of course, banks prefer civil servants with their "bombproof" salaries.
Advantages of the unscheduled repayment
Building loans are associated with long terms, so unscheduled repayments are usually possible without any problems. Unscheduled repayments should be contractually agreed, as they give the borrower a great deal of freedom in repaying the debt. It is important that they are as free as possible or are accompanied only by low fees. Through unscheduled repayments, repayment installments can be made outside of the actual repayment schedule. These voluntary payments shorten the entire financing term. In addition, this helps to reduce the loan installments incurred.
The unscheduled repayment right granted by the bank should always be carefully examined. If it is provided with an excessive interest rate adjustment, caution is basically also required.
Basically there is the possibility with the construction financing to take up an owner-occupied house promotion. It is offered by different parties. Through homeowner subsidies, high savings can be achieved in construction financing. In part, the subsidies include several 10.000 Euro. Subsidies are offered for example by the KfW bank. In addition, regional subsidy programs, as well as Bau-Riester offers are available to builders. When looking for a credit institution should be mandatory to ensure that the bank allows the full use of the homeownership subsidy.
Which repayment should be chosen?
A not unimportant question in the context of the real estate financing and/or. in the real estate loan is how high the initial repayment should be. One advantage of the current low interest rates is that you can afford a higher repayment than if the loan interest rates were (significantly) higher. It is definitely preferable to choose the highest possible repayment, although you should not overstretch yourself with the monthly loan installment. Experts advise fixing the initial repayment at at least three percent. We would like to illustrate how the repayment can affect the loan installment using the following example with three different repayment rates:
Loan amount: 200.000 euros
- Interest rate: 1.35
- Repayment A: 3%
- Monthly loan installment: 725 euros
- Repayment B: 4%
- Monthly loan installment: 891,66 Euro
- Repayment A: 5%
- Monthly credit installment: 1.058.33 euros
In this example, the monthly burden will be around 150 euros higher if you increase the repayment rate by 1%. The advantage of a high repayment rate is primarily that you repay the loan quickly and thus have a lower risk of interest rate changes later on, because the follow-up financing has to run over a shorter period of time than if you have a very long loan term, because the repayment rate is comparatively low.
Equity capital of central importance in construction financing
In the meantime of large meaning in the construction financing is the own capital funds. This has been the case at least since an EU directive obliged banks to pay more attention to the customer's personal creditworthiness than before and no longer to the same extent as before to focus on the collateralization of the loan when deciding whether or not to approve the real estate loan.
Some banks now even consistently no longer grant construction loans to customers who have no equity at all, i.e. would need full financing. Other lenders are not quite so "strict", but usually require minimum ratios. For example, the equity should be at least 15-20 percent or be able to cover the ancillary costs.
However, equity is not only there to satisfy the banks, but it also helps the borrower itself. In some cases, this contributes significantly to obtaining a particularly favorable interest rate. Depending on the bank and the situation, there may well be differences in the interest rate of more than 1.5 percent between a real estate loan with equity and a construction loan without equity.
This fact leads to the fact that the real estate financing without or with only very little equity is sometimes significantly more expensive than if the borrower can integrate own funds. We would like to illustrate how high this difference can be in the following example. We compare the conditions of two borrowers, one with 20 percent equity and the other with no equity.
Construction financing with equity
- Loan amount: 200.000 Euro
- interest rate: 1,30%
- Interest sum in the year: 2.600 euros
- Fixed interest rate: 10 years
- Total interest (without repayment settlement): 26.000 euros
Construction financing without equity capital
- Loan amount: 200.000 euros
- interest rate: 2,50%
- Interest amount per year: 5.000 Euro
- Fixed interest rate: 10 years
- Total interest (without repayment settlement): 50.000 Euro
So in this example, in ten years you would pay around 24.000 euros more in interest compared to a construction financing with 20% equity, if you can not integrate their own funds. In addition, the monthly loan installment can be lower if you have equity capital, because you have less borrowing requirements than with full financing. This makes the whole financing more stable, which is another advantage if you can include your own funds in the financing.
An overview of the individual steps in construction financing
Up to here you received now already a set of information to the topic construction financing. You know, for example, what types of loans there are, what you should pay attention to when setting the interest rate, what the interest rate depends on and the importance of equity in real estate financing. Now we would like to give you an overview of the individual steps involved in financing a construction project. From experience, this info is very important for loan seekers, as real estate financing is often considered a "great unknown" and quite a few consumers are somewhat afraid of this step.
As a rule, construction financing proceeds in the following steps:
- Search and find a suitable property
- Compare offers with each other (e.g.B. per construction financing comparison)
- Select suitable real estate loans
- Apply for a loan, either online or at the branch office
- Specify key data of the financing (loan amount, repayment, term)
- Attach documents, for example salary statements
- Wait for loan approval
- Register a land charge as collateral
- Loan amount is transferred to account
Most of these steps are certainly self-explanatory and therefore need no further explanation. Another topic in construction financing is, in addition to the initial financing, of course, follow-up financing, which is often necessary if you are not using a full repayment loan. Therefore, we would like to inform you about this in the following section in more detail.
The follow-up financing in the future
Not only with the first financing some points are to be considered, but likewise with a follow-up financing. Follow-up financing is the term used for any real estate financing that follows the initial financing, i.e. the first time a real estate loan was taken out. Since nowadays almost always a fixed interest rate is agreed upon, it usually comes after 10 to 15 years to a follow-up financing.
Then, of course, the conditions valid at that time apply, which can of course be significantly less favorable for the borrower. Therefore, in connection with a follow-up financing is often spoken of an interest rate risk, which comes into force after the expiry of the fixed interest rate period. With the follow-up financing, the search for the best offer starts anew. After expiration of the initial financing, you have the following options within the framework of the then upcoming follow-up financing:
- Extend the loan with the same bank
- Take out a new real estate loan with the same lender
- Take out a new loan with another bank
In addition to the regular follow-up financing, which is due at the time of the expiry of the previous initial financing, there are, however, two other options: the early redemption of the loan and the use of a so-called forward loan. However, early redemption before the end of the fixed interest period is only possible if either at least 10 years have elapsed or the bank agrees. In the latter case, however, you almost always have to pay a prepayment penalty. Therefore, you should think carefully about whether an early redemption is worthwhile.
In most cases, a so-called forward loan makes much more sense. You can usually arrange this loan with the bank up to three years before the end of your current fixed interest rate period, i.e. the initial financing. It is therefore an ideal way how you can now still secure favorable interest rates through the forward loan also for the follow-up financing coming in the future. With the forward loan, you virtually eliminate the interest rate risk that you would have expected with the subsequent follow-up financing. You only have to pay a small interest surcharge compared to the then current interest rates of an ordinary real estate loan with the forward loan, but this is usually profitable.
Snapshots and tips for real estate financing
Now that you have already learned a lot about construction financing, we would like to present some interesting advice and tips on real estate financing below. These can help you to avoid mistakes and to choose the ideal suitable financing.
Tip 1: Take enough time to compare offers
The first tip concerns the period before the construction financing. It refers namely to the comparison of the offers, for which you should take a lot of time. A pure condition calculator rarely works in construction financing, because the amount of interest depends on many individual factors, especially on your creditworthiness. You should pay attention to even the smallest interest rate differences when comparing offers, because due to the high loan amounts and long terms, you can save a lot of money in the long run even with tenths of a percent in the interest rate. With at least three to five banks, you should therefore obtain individual offers, but of course you can use a construction financing comparison in advance to sort out the relatively expensive offers immediately.
Tip 2: Go into the loan discussion well prepared
A tip is interesting for all borrowers who do not apply for a construction financing online, but in person in the office, then in the context of a loan discussion. This concerns currently still quite many customers, because with the real estate financing a high consulting need exists, so that frequently still the branch banks are selected. Although the employee assesses your creditworthiness also in the discussion predominantly on the basis of objective numbers and data.
Nevertheless, the personal appearance also makes a certain part. Even if the decision-maker is only aware of it unconsciously, it can still be included in the evaluation to some extent. It therefore makes sense to prepare as well as possible and appear confident in the interview. For example, you should have already thought about the following points in advance or. know some facts, such as:
- Loan amount
- Total costs house (incl. additional costs)
- Amount of disposable income
- Amount of repayment
- Fixed interest rate
- Equity
Tip 3: Weigh the respective advantages and disadvantages well
In some areas of real estate financing, it is important that you weigh the available advantages and disadvantages well. This applies, for example, to the question of whether you would prefer to opt for a fixed interest rate of five years and then only pay an interest rate of, say, 0.90%, or whether the somewhat more expensive variant with 1.20% is ultimately more sensible because you then have interest rate security for ten years. It would be a mistake if you always choose the (seemingly) cheapest offers.
So and similarly it behaves at some points of the financing, so you should take the time to compare advantages and disadvantages in each case.
Tip 4: Consider and inquire about subsidy options
The building of houses as well as the acquisition of residential property are still occasions in Germany, for which there can be promotions. Therefore, you should find out whether this also applies to your real estate project. For example, the KfW Bank grants favorable loans as part of its subsidy programs if you want to build an energy-saving house, for example.
But not only the KfW, but also some municipalities and states sometimes provide subsidies in this area. If you are a family with at least one minor child, you may be eligible for child benefit, which you should not forego.
Tip 5: Plan for reserves with
Stability is very important in construction financing, even though many borrowers are anxious to repay the loan as quickly as possible. Nevertheless, we recommend not to choose the rate too high. It can in everyday life always to larger and unforeseen expenditures can, which can then in the worst case with too scarce calculation even lead to the fact that you cannot pay the agreed upon loan rates any longer. In addition, it is always important to build up reserves for renovations, modernizations and repairs for residential property.
Instead of choosing a rate that is too tight, it is better to take out a slightly higher loan amount if you do not yet have any reserves of your own.
FAQs: Frequently asked questions and answers about construction financing
In the following section, we address some frequently asked questions relating to construction financing. With the respective answers perhaps also some of your questions, which had you before still to the topic real estate financing, are unnecessary.
How high are the interest rates on real estate loans?
The first frequently asked question is also one that cannot be answered across the board. It depends on various factors, how high the interest rates are for real estate loans. First of all, the banks are guided by the general interest rate level on the market, which in turn is primarily oriented to the ECB key interest rate. In addition, the interest rate then depends in particular on the customer's creditworthiness, equity ratio, collateral and also on the key data of the loan, i.e. loan amount and fixed interest rate. Therefore, the interest rates on real estate loans can currently vary from 0.80 to over 3.50%.
What equity ratio do the banks require?
Most loan seekers have now realized that banks are placing more emphasis on equity than in the past. Some financial institutions strictly no longer grant a real estate loan without equity capital or at least require a minimum amount of equity capital. However, there is no uniform regulation between the credit institutions. In most cases, the equity ratio should be between 15 and 20 percent as a minimum, because this usually covers at least the purchase or ancillary construction costs. The exact regulation regarding a required equity share, however, you must ask your bank.
Can a construction financing also be concluded online?
Nowadays, it is of course also possible to take out construction financing online. However, this option is only suitable if the most favorable conditions are most important to you and you have no need for advice. Although online offers are usually characterized by particularly low interest rates, on the other hand, you cannot get personal advice as you can in the bank's branch office. If you have decided to complete the construction financing online, you can do so through the website of the chosen bank. Many further steps can then also be taken online.
Which repayment should I choose?
In the case of a real estate loan, you are relatively free to choose the share of repayment you would like to have in the total installment. The usual initial repayment for an annuity loan is usually between one and five percent. In the low-interest phase, however, it is particularly advisable that you choose the highest possible repayment rate. Then you pay back your real estate loan quickly and have a reduced risk of interest rate changes later in the follow-up financing.
However, of course, you should not overextend yourself by paying too much, so many experts currently recommend an initial repayment of three or four percent.
Can I make unscheduled repayments at any time?
In the case of construction financing, you can usually choose between two variants with regard to real estate loans, namely between a variable-rate construction loan and a mortgage loan with fixed interest rates. The former option is absolutely not recommended at present because of the low interest rates on the market, but it gives you the opportunity to make unscheduled repayments mostly without restriction and free of charge.
In the case of a real estate loan with a fixed interest rate, the situation is different, as the bank must agree to you making an unscheduled repayment there. Unless you have already fixed this in writing in the loan agreement. In most cases, the banks also agree during the fixed interest rate, but then you have to pay an early repayment penalty.
Will the bank approve a real estate loan for me at all??
In recent years, a disproportionately large number of Germans have been able to afford their own four walls and thus real estate financing. The reason is the low interest rates, which start at 0.79 percent for a fixed interest rate of five years. Nevertheless, the banks do not approve by far every application for a real estate loan. Above all, it is important that your credit rating is in order. From the point of view of most banks, this is the case if you do not have a negative entry in the Schufa and have a fixed income, preferably from a dependent job.
An equity ratio of between at least 15 and 20 percent generally also increases your chances of getting a loan approval. Hardly the possibility of a real estate loan, however, you get if you are a housewife, low income, unemployed. Are a pensioner, student or trainee. Even freelancers and self-employed people often have a hard time getting a real estate financing approved.
Do I have to take out certain insurance policies?
Many borrowers ask themselves the question whether in connection with the construction financing actually certain insurances must be locked. Usually, there is only one insurance policy that the banks stipulate as a condition for the loan to be approved, namely homeowners insurance. This protects you from the financial consequences if, for example, the property is occupied or destroyed by fire or storm. destroyed.
In the case of a new building, the lender usually requires the conclusion of a fire insurance as an alternative. Nevertheless, there are other insurance policies that are recommended for you as a builder or property owner, such as property owner's liability insurance, builder's liability insurance and the residential building insurance already mentioned.
What happens if I can no longer pay my installments??
The biggest fear of most owners who have taken out a real estate loan is that they will no longer be able to pay the agreed installments. In fact, this fear is not unfounded, because under certain circumstances, the bank may initiate the foreclosure of the financed real estate in such a case. This often happens even if you have not been able to pay three consecutive installments.
It is therefore advisable, if you have financial problems, to immediately talk to the lender. It is not uncommon for a solution to be found together, such as a temporary suspension of repayment or a reduction in the loan rate.