The still low mortgage rates ensure that the demand for real estate remains high. But not only inventory objects are in demand, also the building of homes is popular. Before a construction project can start, the right building plot is needed.
Depending on the region, finding land can be a big challenge. Accordingly, many people are happy when they have found their building site. But that’s not the end of the topic for a long time, because also the financing wants to be skillful.
Variants of the financing of building plots
For financing, two variants are preferred. The first option provides for the entire construction project being financed at one go, ie the acquisition of the property and the subsequent construction project.
However, it is very common in practice that the buyers of real estate are not yet ready. After they have bought their site, they want to plan calmly in order to realize their dream of their own home optimally. As a result, it is not uncommon that they initially only finance the land and take care of the actual construction later.
The big trap in property financing
Builders who prefer the second option or have no other choice at first should be careful. Unfortunately, they often make a big mistake. This consists of financing the property via a long-term loan. Many banks recommend classic real estate loans with a ten-year fixed interest rate. The conditions offered are often surprisingly good.
Finance experts know this trick. Banks act in such a way as to bind the aspiring builders. Once the loan agreement has been signed, the follow-on financing of the construction project is considered safe. The reason is simple: The existing loan is already secured by land charges. The addition of another loan (to finance the actual construction project) is no longer possible at another bank – each bank wants to secure the loan through the first-ranking mortgage. Subordinated financing is virtually excluded on the scale of a construction project.
Consequently, the landowner has no choice but to stay with his bank. Now this can basically dictate their interest rate. Top conditions are then in the distance, possibly the construction is financed very costly.
Tips from practice
If you want to remain completely flexible, you pay your property completely with your own funds. The building ground can later be charged in full as equity, so that there is no disadvantage. The advantage for the prospective client is that they have no time pressure and are free to choose their financing partner.
If there is no way around financing the construction site, the loan should offer the greatest possible flexibility. This can be achieved by completing it in conjunction with a very short interest rate commitment, such as one or two years. If you want to remain very flexible, you opt for a variable loan that is not subject to any fixed interest rates. In general, because of the lack of interest rate security of such loans is rather discouraged, but given the rather short financing period, this variant is quite interesting. At least this is the case if the construction project is to follow soon.
If you want to buy and finance a building plot that is not likely to be developed, you can, of course, take the classic route and choose a real estate loan with a longer fixed interest period.
Interest comparison for best loan conditions
You want to finance a property or are already planning a complete construction project? We are happy to assist you with your financing. Our specialists help with the financing arrangement in order to optimally match the loans to your personal situation. The integration of subsidies will also be examined.
In addition, we can evaluate financing offers from more than 400 banks, building societies and insurers. This gives you access to the best conditions. Incidentally, our service is free of charge and without obligation, ie you will never take any risks. We look forward to your inquiry.