Process of construction financing - starting from construction

Hello,

We have pretty much given up the house search now and really want to build.
Over the weekend we had the first appointment with a local construction company that has already managed several projects in the area and that we have also favored so far ourselves.
I have already learned a lot about this.
Now I am wondering how to finance a house build in detail. Currently, I imagine it a bit like gears engaging with each other.
Now I would like to know exactly how construction financing works?
When is the best time to start looking for a bank?
When does one start repaying the loan?
What is usually the case with commitment interest and how can it be avoided?

Hello,
You repay the loan once you have fully drawn it. Until then, you pay interest on the drawn amount.
You can always get information. When to finalize is up to you; it also depends on your equity, which you have to use up first.
The [Bereitstellungszins Zeitraum] starts from the date of signing the financing agreement.

Most banks now grant a period during which you do not have to pay commitment interest for funds not drawn down. Depending on the agreement, this can be up to 12 months. Especially in the case of building a house, this is a convenient thing since the entire loan amount is not needed all at once.

As a first point, you should first outline what your budget actually looks like. For this, you should know your income and expenses in detail and also include future expenses (additional house-related costs are usually higher than in a rental apartment, additional insurance, children, etc.....). It might also be useful to consult a financial advisor or a bank in advance to check how much you can actually afford. Because it’s no use planning a house that you ultimately cannot afford.

When is the best time to start looking for a bank?

To tackle the exact financing, you should already know as precisely as possible what the total costs will be (of course always include a buffer). Here, the question also arises whether a plot of land is already available or not, or whether this can be paid from equity. If not, the right time would be when you are about to purchase the plot of land. If the plot is available, then I would definitely clarify the financing before construction starts, regardless of whether there is still equity or not, so that you don’t start and then run out of money because from the bank’s perspective something doesn’t fit.

When do you start repaying the loan?

This can vary somewhat from bank to bank. Often it is as honk0190 wrote, i.e., repayment begins after full disbursement, before that you only pay interest on the amounts drawn and possibly commitment interest on the amounts not yet drawn. But there are also banks (ours is one of them ;)) where the start of repayment is defined by date, even if only part of the amounts have been drawn. In that case, it can of course happen that you have to pay commitment interest in addition to the full loan installment.

How is it usually with commitment interest and how can you avoid it?

You can possibly avoid it by agreeing on the longest possible commitment-interest-free period and hope that there are no major delays during construction. ;) The financiers will tell you how long they are willing to waive commitment interest. In some cases, it is still possible to negotiate this with the banks.