While the financing of the so-called turnkey house is a related agenda close to the financing of the purchase of real estate, the self-financing of the construction is more complicated right from the start. Some banks do not approve the loan at all unless construction is carried out by a contractor. In practice, it is very common to combine several suppliers or just building a self-help. In such cases, it is very important for the client to know whether the bank can draw so-called without presenting documents. The bank’s access to the drawdown decides at this point whether the client receives the money in his account and can then buy and pay in cash. This will significantly save against the situation in which the bank requires the submission of documents on the acquisition of building materials. In such cases, expenditure is reimbursed retroactively. There is also a service on the market where the bank provides the client with a certain amount of money to start construction. The contractual appraiser then checks that the amount has actually been recovered.
Banks allow drawing of the loan according to the current collateral value of the property under construction. This is an essential fact that should be known beforehand and which should then be subject to the actual construction schedule. It is important to keep in mind that the purchased material, which is not yet built into the building, has no value for the bank and therefore cannot be guaranteed. This may delay further spending.
The most effective is to finance the land and construction from one loan
An important factor in financing the construction is also whether the mortgage applicant already owns the land on which he wants to build. If the client applies for a mortgage for both the land and the construction of the house, he must already have an acquisition title for the building land and a contract for work for future construction, or building permit, including the construction budget. The funds for the purchase of land then draws immediately, one-off. If he has only an acquisition title, or mostly a purchase contract, he can initially obtain a loan only for the purchase of land. Later, he will be approved for another loan for the construction itself. However, this procedure is more costly due to fees.
A 100% mortgage is a more expensive option
When choosing a bank should also decide whether the applicant disposes of the saved funds or intends to pay the entire investment mortgage. If the person interested in the mortgage does not have any own savings, the whole construction can be financed exclusively from mortgage loan funds. If the bank finances the entire housing investment, it naturally means a higher interest rate for the client and the financing will thus become more expensive. But not every bank provides mortgages at 100% of the value of the property. This fact must be taken into account when choosing a mortgage company.