Construction finance – loan exclusively for the property

Private individuals and corporate customers can be considered as borrowers

Home finance is a dedicated loan that can only be used to finance the purchase, construction or renovation of residential property. Both private individuals and corporate customers can be considered as borrowers if there is no doubt as to their creditworthiness and creditworthiness. Specifically, this means that the borrower must be legally able to conclude valid contracts and also have sufficient solvency. Both can be confirmed using various documents and documents.

Since construction finance is a long-term loan, sustainability of solvency must be ensured, so that, for example, there should be no fixed-term employment relationship with private customers. In order to further reduce the risk of a credit default and prevent a loss, the lending bank requires a mortgage as security.

The property that is financed by the loan is charged

As a result, the property that is financed by the loan is charged and can be sold if the borrower is unable to pay. All other conditions of mortgage lending such as the amount of the loan and the type of repayment are set out in the loan agreement. The maximum loan amount that the borrower can borrow depends on the amount of the mortgage lending value of the property, i.e. the potential proceeds that would be obtained from a sale of the residential property.

There are also differences from bank to bank in terms of maximum loan amounts. Some credit institutions even provide construction finance that can cover all of the costs that arise, so that the borrower no longer has to bring in his own funds.

Made available in several payments according to the construction progress

Most of the time, the construction finance is not paid out in one sum, but is made available in several payments according to the construction progress. With regard to the repayment of the loan, you can choose between ongoing installment payments and a one-off payment at the end of the term, which settles the entire loan debt.

In the event of a final loan repayment, a repayment instrument such as life insurance or a home savings contract can be set up, with which the corresponding capital can be raised. The redemption instrument is then pledged to the bank so that the borrower cannot cancel it and dispose of the credit.

Regardless of the repayment variant, the borrower pays the interest in regular payments during the term, which can be up to 30 years. However, the effective interest rate does not apply for the entire term, but only for a few years and is set again when the fixed interest period expires. The borrower then chooses either a fixed or a variable interest rate. In addition to the interest costs, construction financing also often incurs processing or provision commissions and fees for the notary.