Process of Financing and House Construction

Hello,


after we are expected to receive confirmation of the reservation for our building plot at the end of May, I am now considering how best to proceed. I am also interested in how you had planned / plan this.

The building plot would be in a new development area that is yet to be developed; this is expected to be fully developed by the end of the year.

I had planned the following timeline:

June 2017: Reservation of building plot
August 2017: Completion of financing
August 2017: Purchase of building plot
November 2017: End of development work
February/March 2018: Start of construction
November 2018: Move-in


Since I expect rising interest rates until construction starts in February/March next year, I would like to finalize the financing already in July/August. We were already promised 9 months of interest-free provision in an initial financing inquiry at the house bank.

If one assumes 9 months of interest-free provision, then that period would be August 2017 to April 2017. From May 2018, the interest on provision would then only begin for the part of the loan that has not yet been drawn down.


What do you think of this timeline?

How did you plan the timeline?

When did you start with the repayment? I would already trust us to do this from the start of construction, but that would already be quite an amount on top of the rent. One could also solve this later by means of a special repayment (up to 5% possible), or what do you think?

What I forgot to ask the bank: would the bank conclude the financing with us and insist on immediate registration of the contractually agreed land charge? If not, we could also buy the land later, e.g. in November/December after completion of the development work. What are your experiences here?




Many thanks already for your effort in reading all this

Hello,

Interest + repayment come into effect from the full disbursement of a loan. If you, for example, take out 1 loan for the land and house construction, you pay pure interest on the drawn funds + from the 9th month the commitment interest on the undrawn funds.

In your case, it is worth considering whether you take out 1 loan for the land and a 2nd for the house construction.

Do you basically have a financing partner and have you dealt with the construction sums or already checked possible financing amounts?

9 months of interest-free commitment period was offered to us initially

Actually, for new builds, most banks offer at least 12 months. Don’t just go to your house bank but also brokers; even if you don’t want to go elsewhere, comparison offers help on the one hand to assess the house bank’s offer, but also possibly to improve it.

When did you start with the repayment?

Repayment usually begins one month after full disbursement of the loan. So usually when you have moved in.

From May 2018, the commitment interest would then start, but only for the part of the loan that has not yet been drawn.

Would the bank complete the financing with us and insist on the immediate registration of the contractually agreed mortgage?

Usually, the financing should be secured before the notary appointment. After signing the loan agreement, the clock starts.
The notary will carry out the mortgage registration in the second act.
Of course, you could also finalize the financing later, but then how would the interest rate be...

When does the municipality actually want the money? In November?

February/March 2018: start of construction
November 2018: move-in

Do you already have a contractor who has the time? Also, depending on the weather, there can be delays.

Thank you very much for the incredibly quick responses!

In your case, it is worth considering whether you take out 1 loan for the land and 2 for the house construction.

I think that’s a good idea because then we could start repaying proportionally immediately. In my plan with just one loan, for example from August 2017 to November 2018, not a single repayment would take place.

Would this then result in higher notary/land registry fees if two loans are entered as mortgages instead of one? Just in general and regardless of whether there would be “dramatic” additional costs.

Have you basically spoken with a financing partner and dealt with the construction sums or already checked possible financing amounts?

Yes, we have done that first with our main bank now.

Basically, for new builds most banks offer at least 12 months. Don’t just go to your main bank but also intermediaries; even if you don’t want to go elsewhere, competing offers help on the one hand to assess your main bank’s offer and possibly improve it.

We also intend to go to the usual intermediaries (Dr. Klein, Interhyp as well as an intermediary known to us) and to the second main bank. So far, we have only been to my wife’s main bank; I have another bank.
The conversation so far was just for orientation.

Repayment generally starts one month after full disbursement of the loan. In other words, usually when you have moved in.

That would be very late, hence see above, possible splitting of the loan as HilfeHilfe pointed out.

Usually the financing should be arranged before the notary appointment. After signing the loan agreement, the clock starts.
The notary will carry out the mortgage order in the second act.
Of course, you could also finalize the financing later, but then the interest rate...

When does the municipality actually want the money? In November?

I initially wanted to finalize the financing and then arrange a notary appointment and not the other way around; I am aware that the time then starts running. I thought I could do the notary part several months later (after financing) to make greater use of the interest-free period. But after HilfeHilfe’s tip, I tend to a splitting of the loans.

The municipality has not yet made any specific statement on this. However, it is customary here that building plots can first be reserved and only bought at a later date. There is no time requirement here. From other new development areas, I know that building plots were sometimes reserved for up to a year or longer.

Do you already have a builder who has time? Also, delays can occur depending on the weather.

Yes, we have already spoken with the builder in advance, but since the house might have to be made smaller (this now depends on whether we get our desired building plot or another, smaller one), I wanted a concrete offer only once we know the definitive building plot and thus the final building window etc.

That would be very late, therefore see above possible splitting of the loan as pointed out by HilfeHilfe.

Where is the problem? So start repaying only when the house is built?

Where is the problem? So start repaying only when the house is built?

I thought that would be "too late" because I tend to go for a 15-year fixed interest period so far.

Then, in our case (financing August 2017, repayment start November 2018), more than a year would have passed of the 15-year fixed interest period during which nothing was repaid.

Is it common in financing that you more or less "waste" a year? Doing the financing only in 2018 is too risky for me because of the interest rate level; an increase of 0.3-0.5% would already be very expensive over the term.

Edit: With a higher interest rate level applied to the entire loan, there would also be significantly more remaining debt, assuming the same installment.