How to get a loan to build a house?

ModernHouse 2023-08-30

When purchasing a building plot, we can use a mortgage loan.
However, it is worth remembering that we take out a loan for a plot from the same bank where we plan to take out a loan to build a house. This makes the procedure much easier. In the event of changes, it is faster to implement, which affects costs. We choose a bank that is flexible when it comes to paying out tranches. If this is your first time, it is worth contacting a trusted credit advisor who will help you dispel any doubts about the entire process.

Pay attention to the conditions regarding the payment of tranches, e.g.:

  • tranche amount,
  • payment time from inspection, acceptance of a specific stage of construction according to the design and cost estimate,
  • what is the process of accepting construction stages by the bank,
  • what the inspection looks like,
  • what is the grace period?,
  • what own contribution, etc.

Where to start?
Preliminary agreement for the purchase of a plot.

Loan application with required documents, e.g.:

  • extract and outline of the plot boundaries,
  • owner's title deed,
  • land and mortgage register number,
  • pamiętaj o 20 % wkładu własnego ceny transakcyjnej.

Building a house
We submit a loan application along with documents, including:.

  • building permit,
  • construction project,
  • land and mortgage register number, if any,
  • preliminary agreement,
  • Act of ownership,
  • extract and excerpt from the land register,
  • 20% own contribution of the transaction price.

We are talking here about the so-called economic system when you do some of the work yourself.
This system requires a good plan and skills from you that will allow you to implement the best solutions. In a word, you have to be a good logistician. The most important thing is a well-prepared cost estimate. Sometimes it is worth increasing the cost of completing a stage rather than being forced to stop construction because there is no financial liquidity. Remember that the bank will not pay you the next tranche if the project stage is not completed. Of course, as you might have guessed, the bank has its own methodology for pricing the construction of a square meter of a house. Typically, the smaller the house, the higher the cost per square meter. Location is another factor influencing the valuation of a square meter of a built house. Most people include everything possible in the construction costs, following the rule that if it is overpaid or used for finishing and purchasing furniture, or alternatively, there is always the possibility of canceling the last tranche. The construction project must be transparent without any question marks.
Often, the materials mentioned in the project can be replaced with substitutes with the same characteristics at a lower price. This approach to design gives the contractor great flexibility when implementing the project. Imagine a situation where you can use only one building material to perform a specific job, and you find out in a construction warehouse that this particular material will be available in a month. This would definitely delay the implementation time. So if you want to have flexible options, check what substitutes your house design allows for.

Summary

1. We take possession of the plot. We can use the plot as our own contribution if we purchased it earlier. In the case of a donation, inheritance or purchase that took place earlier, we will have to use a property appraiser to value the plot. Remember to include such an appraiser on the bank's list.

2. Choose a bank consciously assessing your capabilities and intentions.

3. We submit loan applications along with the required documents.

4. We are waiting for the decision and possibly supplementing the missing documents.

5. We sign the contract, the bank disburses the loan in tranches.

6. The bank pays each tranche on the basis of the conditions specified in the agreement regarding the payment of tranches. Most often, someone comes to the construction site, takes photos of the construction stage and after a few days the bank disburses the tranche. Of course, such an inspection usually requires a fee.

7. The construction ends with the acceptance of the building, the bank signs the mortgage and we repay it with a loan.

8. Once completed, the house must be insured.

9. Remember that during construction, which lasts several months, after the payment of the first tranche, the bank usually introduces a grace period in the repayment of capital, we only pay interest.
So the capital amount is the same. The conclusion is that the grace period shortens the loan period without affecting the repaid capital.

10. Remember that approximately 2-3 months may pass from the moment of submitting the loan application to the payment of the first tranche. When planning construction in the spring, it is worth starting to apply for a loan much earlier, it may be even 6 months earlier.

11. You've probably heard the so-called alternating financing, i.e.:

  • 1st tranche - you,
  • 2nd tranche - bank,
  • 3rd tranche - you,
  • 4th tranche - bank,

Banks prefer to finance the entire investment, wanting to secure 100% of the property.

12. As we wrote earlier, construction is a time-consuming process.
When building, you must be aware that you will repay the loan after receiving the first tranche. This is usually interest on the basis of a grace period in repayment of the loan until the building is taken over.

13. We have the right to withdraw the last tranche if the previous installments were sufficient to complete the construction of our house. Therefore, it is sometimes worth overestimating the cost, being calm and being pleasantly surprised at the end.

14. People often apply for a mortgage loan to build a house by mortgaging the property they already own. The only benefit here is freedom of action while building the house. In the case of the economic system, pay attention to planning.
Construction crews vary. The most important thing is to have money to complete individual tranches. Failure to complete a stage on time or lack of financial resources to complete a stage may significantly impede the entire process or stop it.