Problems with bank - equity

Hello,

In November, we took out a loan through an intermediary with a bank.

The loan is for €260,000. We declared €100,000 as equity. In addition, our plot of land is already fully paid off. The cost was €112,000.

At the beginning of the year, we submitted the first invoice from the shell builder to our intermediary. They forwarded it to the bank. We then received information from the bank that we should first transfer our equity capital of €100,000 to our construction account; otherwise, no further invoices will be paid.
We were very confused by this message. It was never mentioned that we had to transfer our capital to the bank. Our intermediary had never experienced this either.

We checked our contracts and found nothing stating that we have to transfer the money. After a conversation with the bank, we got no further. The bank admits that we are not obliged, but it would be customary. When we pointed out that we are not contractually obliged, the response was: We are also not obliged to disburse the loan.

We want and must use the equity capital for the construction. However, we want to keep it in our current account. It is possible that the construction will be somewhat cheaper than planned (as it looks at the moment).

Does anyone have any advice on how we should proceed?

Thanks for your help

It is normal that the equity is used first. However, the bank will also be able to accept that your invoices up to EUR 100,000 are paid directly from your account. If the construction becomes cheaper, you will have to negotiate with the bank. With our clients, we often agree that the loan is then reduced - although these are commercial buildings. However, in private construction financing, it is not uncommon for part of the equity to be retained in order to remain flexible. What is stated as the disbursement condition in the loan agreement? First full equity usage?

Thank you for the response. The contract says nothing about payout conditions.

Are these only bank loans or are there also grants involved ([NBank, KfW])? Promotional loans often require the use of equity at the start of construction. Regardless, the use of equity right at the beginning is normal.

Therefore, for me, the question is not about the bank’s reason, but rather why you did not want to transfer the money to the financing bank. They will not steal it. And if it is meant to be used for the construction, I see no problem there. If in the end you have money left over, you can just withdraw it again. Being transparent is also part of a good relationship with your bank. So why withhold the equity, which was obviously planned for the financing?

Ok, on the one hand, that's a bit strange because, for example, I didn't have to provide invoices when I drew down the construction loan, rather the opposite: they were quite happy that they didn't have to check every single invoice during the drawdown phase, but it was done afterwards. During the construction phase, I could draw the construction loan in minimal installments of €10,000; if it was more, no problem, and you also pay commitment interest if you draw the loan late, so I don't really understand the bank.

On the other hand, you naturally have to prove the equity capital, and the equity capital is also a fixed part of the total financing. For me, it was used for the house purchase, which logically took place before the renovation. So it is normal to use the equity capital at the beginning. Without wanting to accuse you of anything, but there are also cases where people who had their construction financing paid out were caught on the sunny beach abroad. That's not so funny for the bank, as it may sound, because then no house was built, which was actually intended to secure the loan. So the question is, from your point of view, what is so bad about investing your equity capital in your house? Isn't that what it is meant for!?

Best regards Dirk Grafe

We also had 40,000€ "in reserve" from the value of our property. Our advisor advised us against reporting this to the bank in order to later buy furniture, etc. with it. That would always mean a huge effort to clarify with the banks that you want to use the construction loan for the kitchen.

Now the cat is in the well with you, and the bank holds the stronger position. Suggest to them to pay in 70,000€ and keep 30,000€... maybe they will agree to that. After all, the bank counted on your money and set the interest accordingly. If you blow the money tomorrow in the casino, you have taken away the bank's security. Otherwise, anyone could just have money transferred from relatives, which is then presented as equity.