Construction financing

A building or building Real estate financing makes it possible to realize the dream of residential property. The loan is earmarked and serves to build, purchase, modernize or renovate a house or apartment. The loan is returned in monthly instalments, consisting of repayment and interest.

The most common form of loan for construction financing is the annuity loan. Here, the monthly rate remains constant over the entire duration, which creates planning security. The composition of annuity (rate) shifts over time. Initially, the interest rate is higher and there is relatively little repaid from the loan. This weighting is constantly changing, so that at the end of the maturity, the repayment portion is becoming ever higher and the interest share is lower.

Important criteria for construction financing

Creditworthiness : The creditworthiness of the borrower is examined before granting construction financing. Among other things, the income and asset situation is taken into account and a Schufa information is obtained.
Equity : Banks usually require a certain share of equity capital in order to minimise the risk of construction financing. A rough guideline is 20 to 30 percent of the financing amount that should be available as equity in order to be able to pay brokers, real estate transfer tax or notary costs, for example. The higher the equity, the more favourable the credit conditions are usually.
Fixed interest rates : When construction financing is concluded, the interest and repayment conditions (interest obligation) will be fixed over a fixed period (usually 10 or 15 years). This creates planning security. Anyone who expects rising interest rates agrees a longer interest rate fixed. After the interest period, a follow-up financing is concluded via the remaining debt, at the then current conditions and with a new interest fixed rate.
Repayment set : The repayment set is determined at the end (e.g. 4 %). Depending on the financial margin, it should be chosen as high as possible so that the loan can be redeemed faster. As a rule, the repayment set can be adjusted during the term (usually 1x per year).
Sicherheiten: To secure construction financing, credit institutions generally require collateral, such as a land liability on the property to be financed and risk life insurance on the borrower amounted to the loan amount.
Special repayment : In order to replace the construction financing more quickly, a special repayment can usually be made once a year. This is limited to 5 percent of the loan amount for most banks.
Funding : The construction project may be provided by various programmes (e.g. KfW loan, housing premium) is eligible or supported by the state.