Dreaming of building your own home but postponing it because you're worried about high costs? It turns out they can be lower than when buying an apartment. How much exactly do you need to start? Let's find out!
What does a construction loan for building a house look like?
Let's start by clarifying basic concepts, as there are still many unfounded myths circulating about construction loans for building a house.
A construction loan is a financial product that, as the name suggests, enables financing the process of building a house. It is a form of mortgage loan, which differs from standard housing loans intended for purchasing ready-made properties primarily at the application stage. However, the conditions are the same.
Here are some key aspects of a construction loan for building a house:
• Purpose: the loan is intended to finance the construction of a new house, but it can also be used, for example, to complete an already started construction project.
• Disbursement in tranches: funds from the loan are paid out in tranches, which depend on the progress of construction work. The bank releases subsequent portions of financing after confirming the completion of specific construction stages, which is most often verified based on submitted documentation.
• Down payment: similar to other mortgage loans, a down payment is required, usually ranging from 10% to 20% of the investment value. The value of the plot on which the construction is carried out can be counted towards the down payment, which is extremely important from the borrower's perspective.
• Security and interest rate: the loan is secured by a mortgage. The interest rate can be fixed or variable, similar to other mortgage loans.
• Documentation: applying for a construction loan requires submitting detailed documents related to the construction and the plot. An important role is also played by the construction schedule.
What do you need to get started?
If you plan to take on a new obligation, one thing is certain. First, you need expert knowledge. You can find more about construction loans for building a house on the Kredytowy Blog website.
Consulting with a credit advisor is also a good idea. They will dispel your doubts and help you choose the perfect product. But we have good news: you don't need to have enormous funds to start building and move into your dream home soon.
For example, when purchasing an existing apartment on credit, many people find it challenging to save the required down payment. And this is true even if it’s only about 10%.
For instance: for a property worth 800,000 PLN, the down payment would be 80,000 PLN in cash. In the case of a construction loan, the down payment can be considered as the value of the plot where the building will be erected (it could be inherited or received as a gift). This significantly simplifies the process and can lead to substantial financial savings.
What is the required creditworthiness for a construction loan?
Remember that, as with any other obligation, you need to ensure adequate creditworthiness for a construction loan. The amount required depends primarily on the total value of the investment you want to carry out.
If you need 650,000 PLN to build a house, your creditworthiness must be at least that amount. Also, keep in mind that you do not have full discretion over how much you need to borrow for the construction. Banks set internal regulations regarding the minimum expenditure necessary per square meter.
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