The building loan is a loan that can be used to finance construction projects or to buy a property or condominium. In principle, it is earmarked so that it can only be used for the purposes specified in the loan application. For this reason, customers have to submit cost estimates for the anticipated renovation costs or the list of the total costs made by the architect to the bank.
For the later payment of the loan amount, the invoices of the craftsmen or property developers or the architect’s completion report are then necessary.
The bank can then be sure that the building loan has actually been invested in maintaining the value or increasing the value of the property and has not been spent otherwise. This is the only way that the land charge entered in the land register of the property is also valuable and actually serves to secure financing.
On the basis of the applicant’s documents, the banks draw up a financing plan that shows the necessary financing expenditure minus the equity capital or own contributions. This necessary credit requirement is then the basis for the creation of a loan offer, which is created individually for the customer by using different loan types.
An overview of the requirements
In order to be able to use a building loan, various requirements must be met. The most important requirement is that the potential borrowers can pay the monthly installment from their income. To do this, the income must be sustainable. Parental allowance, unemployment benefit and child benefit for older children are often not recognized by the banks due to the time limit.
The bank then draws up a household account based on the monthly income, which can be proven by means of proof of salary, pension notification or the balance sheet for the self-employed. The income is now compared to the monthly recurring expenses, whereby the cost of living is generally estimated by the institutes as a flat rate. The loan can only be granted if the budget is positive.
A further requirement for the building loan is a correct Schufa information, which must not contain any negative characteristics. For self-employed people, the banks often get additional external information, which must also be positive.
Ultimately, however, the bank must also receive sufficient security for the loan it has granted. Since the registration of land charges is usually chosen for the financing of a property, the property must have at least the value of the loan amount, ideally, the amount of the loan is even far below the value of the property, because then the security of the bank is greater, which is positive will affect the interest rate.
For this reason, borrowers should always be able to demonstrate equity in new construction projects or purchase requests in order to reduce the loan amount and the subsequent borrowing costs.
Building loan comparison and calculator – top offers online
Here you will find our comparison and calculator for construction loans. Find the current top interest rates and conditions from the best providers on the market. Simply select your desired dates above and click on “Compare mortgage lending”.
Interest calculation for a building loan
Determination of the interest for a building loan The interest for the building loan is probably the most important feature to watch out for. After all, the interest charge is decisive for the amount of the monthly installment and the calculation of the total cost of construction finance.
The building rates charged by the banks are of course primarily based on the general market level. The central bank’s key interest rates reflect the refinancing costs of the banks, which form the basis for calculating the credit margins.
In addition, since the introduction of the Basel II equity guidelines, the borrower’s personal credit rating has also played an important role in determining interest rates. The better the customer’s credit rating is determined by the bank as part of the scoring, the lower the interest charged on the loan.
The reason for this is that banks only have to set up low, cost-intensive provisions for customers with first-class credit ratings than for customers with low credit ratings. The basis for the credit rating calculation is information on income, length of employment, age and marital status. The Schufa score and the intrinsic value of the collateral also play an important role.
One of the types of loans for home finance that is used most frequently in Germany is the annuity loan. It is particularly characterized by its long-term nature because this type of loan can have a term of up to 35 years. The individual term is calculated based on the desired repayment amount, which is given as a percentage of the loan amount. Repayment rates of 1-5% of the initial loan amount are often available to the customer, although today even loans with a repayment option are available.
If the chosen repayment amount turns out to be wrong after the contract has been concluded, it can be changed once a year free of charge. The interest can be fixed for the annuity loan between 5-20 years. During this fixed interest period, the rates for the construction loan also remain constant, so that customers receive planning security. Especially in low-interest phases, attention should be paid to the longest possible fixed interest period in order to reduce the risk of interest rate changes after the fixed interest period has expired.
Applicants for the annuity loan should also make sure that the longest possible availability is agreed so that the loan only has to be used in full after one year without the commitment interest being charged. Furthermore, the financing should be equipped with a special repayment option so that the loan can also be repaid early.
The cost and fees for the loan
There are various costs for taking out a building loan. On the one hand, these are the interest costs, which depend on the market level and personal creditworthiness. The banks also charge processing fees and valuation fees, each of which can amount to up to 1% of the loan amount. Some direct banks have now started to waive both these processing fees and the valuation fees.
A comparison of the offers is very recommendable in the case of construction financing – due to the complexity of the offers and the different life situations. The effective annual interest rate, which should be calculated for the entire term, offers an important comparison option because it contains not only the nominal interest rate but also the processing fees. However, valuation fees or account management fees and insurance costs are not included in the effective interest.