Building your own home comes at a hefty cost. Depending on the region or. Height of the prices for building land is a building project not affordable for everyone. However, the situation has eased a little, after all, mortgage rates are cheaper than ever before.
However, the financing can bring some pitfalls with it. This is especially true for the financing of the building plot. It can quickly happen that builders fall into an interest trap, which will cost them dearly later on.
How quickly should the land be built on?
First, a trip to the financing options, of which primarily two enjoy great popularity. The first option is to finance the construction project in full, d.h. the purchase of the property is included. Overall, this form of construction financing is very attractive because it involves fewer pitfalls.
Nevertheless, sometimes it may be necessary to finance only the building site at first. Strictly speaking, this actually happens frequently in practice. It is not always possible to start construction of the building immediately. Some people even deliberately take a long time. You want to acquire the land first so that you can build on it later on. So they only finance the building plot.
Land financing pitfall
Those who want to finance only the property for the time being should be careful. Many banks lure their customers into a classic real estate loan with long-term fixed interest rates. As a result, borrowers have no other option but to complete the subsequent financing of the actual construction there as well.
The reason for this can be found in loan collateralization. The bank will insist on a security by means of land charge. Once this is registered, no other bank will be willing to finance the rest of the building project – at least not as long as a first-ranking land charge already exists. Banks simply do not take such a risk.
So the landowner has no choice but to finance his house construction with the financial institution that has already financed the building site. For the bank, this in turn means not having to offer a very attractive loan interest rate. This necessity does not exist, after all the customer has no alternative. Accordingly, a financing threatens with handsome interest costs.
How prospective builders finance cleverly
If you do not want to take such a risk, you should avoid a property loan with a long fixed interest rate. It would be best to simply pay for the property with your own funds. When financing the construction at a later date, it is possible without any problems to have the property credited as equity. Especially since interest rates would not be accruing in the meantime either.
If this option is not available due to lack of funds, another solution is available. It consists in opting for a variable loan when financing the property. In most cases we advise against such a loan in construction financing, but here it fits all the better. Because there is no fixed interest rate, it can be redeemed at any time, d.h. be paid back. This is how the owner of the building plot remains flexible. He first finances a building plot. As soon as his plans are in place and he wants to get started, he replaces the variable loan as part of regular financing. He finances the entire project including the property anew, which may then of course also gladly in connection with a fixed interest rate happen. When looking for this loan, he is not tied to any provider and therefore has a greater chance to finance at low interest rates.