Optimizing the construction financing process
You can't build a house overnight. To ensure that nothing stands in the way of your financial planning for your own four walls, we have outlined the most common procedures for construction financing in detail. Starting with the perfect floor plan, you will get closer to your dream of owning your own home step by step.
The construction financing process: From the idea to the payout
There are basically two ways in which your construction financing can be structured. If you are buying an existing property, the total amount approved will be paid out in one lump sum after the purchase has been notarized. The notary acts as a trustee and forwards the sum to the seller. If you are building a house, the construction financing process provides for payment in installments upon presentation of the contractor's invoices.
Is there a right time for mortgage financing?
Before applying for a mortgage, you can request non-binding terms and conditions and find out about your options. It is important that you do not submit a credit application, as this will be noted in your Schufa credit report and could stand in your way when you are ready to apply for a loan. The right time is when you have made all the necessary preparations, decided on a home builder or construction company, and are ready to start immediately after receiving confirmation from the bank.
Explained in detail—the mortgage financing process
To ensure that the construction financing process runs smoothly, you should be well prepared and have all the necessary documents to hand. This includes a comprehensive exposé on the property you wish to finance. Make sure that no documents are missing and that you do not inadvertently give an unreliable impression.
Ask the bank for the required documents
What else is required besides your proof of income, details of the property, and proof of your equity? Every lender has different requirements, which may also be based on your professional activity, for example. To avoid delaying the mortgage process, it is best to ask your preferred lender which documents they specifically require and what you should bring with you to the appointment.
Gather all documents
With your tax and income documents neatly filed in a folder, along with your bank statements, cost estimate, and house-building proposal, you are well prepared for your appointment at the bank.
Proof of income and proof of equity capital according to occupation
As an employee, bring your pay slips with you to your bank appointment. The process of obtaining a mortgage for freelancers and self-employed persons differs in terms of proof of financial security. Depending on the bank, you may be required to provide proof of your income for the last two to three years in the form of your business evaluation and tax assessment notices from the tax office. If your income is low, an additional list of all other liabilities may be required and may be a prerequisite for obtaining a mortgage.
Arrange a bank appointment to apply for financing
Once you have all the documents in your hands and, ideally, have signed a non-binding preliminary agreement with the construction company, the bank appointment should not be too far away. Since the loan consultation can take up to two hours, you should plan the appointment so that you are not in a hurry during the meeting.
Negotiate terms and conditions - if necessary, have a pre-financing confirmation issued
Consultation and negotiation of terms and conditions are part of the mortgage financing process. The application is usually submitted on the day of the bank consultation. This means that you will now be informed about the interest rate advantages available in your case, any special contractual agreements, and the term and monthly installment. If you have any questions or are dissatisfied with any aspect, please share your concerns at this stage of the construction financing process. Once you have signed the loan application, this means that you agree to the terms and conditions and the construction financing process to date. Tip: Have you already received a verbal commitment and know that the bank will support your house construction and provide the financial resources? Then you could have a pre-financing confirmation issued in the following construction financing process. This is not a fixed loan commitment, but a guarantee for the seller that you are solvent and will receive a legally valid confirmation in the further course of the construction financing process.
Have your construction loan paid out - Complete your real estate purchase
Depending on the bank and the loan amount, processing takes between 10 days and 3 weeks. You cannot speed up the mortgage process, so it is best to refrain from constantly inquiring about the status of your application. If the loan is approved, you will receive a new appointment to sign the contract and can go home on that day with 100% certainty that the bank will accompany you. Now is the right time for notarization, as the bank will no longer cancel your construction financing. With the payout, you can complete the real estate purchase or construction contract and become the owner.
All information has been compiled to the best of our knowledge. However, we cannot accept liability for the details.
