Building your own home is a dream come true for many people. However, most of them cannot cover the costs of such an undertaking out of their own pocket. That is why they apply to banks for a loan for a specific amount.
What do you need to do and what conditions to meet to get a loan to build your dream home? Here are some top tips that can be very useful during this process.
Home construction loan – how does it work?
Home construction loan loan is also often called a mortgage construction loan. This is due to the fact that it really combines two different ways of crediting our investment. When we are building a house, it is a typical construction loan. However, at the moment when this stage of the investment is completed and our house is put into use, bank financing turns into a mortgage. Of course, the purpose of such a loan is not changed, it still includes the construction of real estate. But the way the investment is credited is changing at two stages. Due to this, the terms and security of such a loan are also being transformed.
Check the offers of various banks
A large number of banks are currently operating on the market, and each of them is trying to attract the largest number of clients interested in individual financial products. Of course, this is a big plus for borrowers themselves, because they can often find very attractive offers that meet their needs. So when we start thinking about taking out a loan, first we look at the proposals of more banks. The SMART comparison tool can help us in this. We can also call the helpline of the banks, where the consultants will provide us with an overview of the offer for a house loan.
After conducting the initial search, we can already choose a few suggestions that will seem most favorable to us and go to the branches of specific banks. It’s best to make an appointment with a credit counselor who will give us all the details about your home loan. We must carefully read the terms of the loan and what exactly the bank requires from us so that our application will be approved. The adviser should also provide us with a list of documents that we will need to attach to the application. When we have all the talks in each of the banks that interest us, it remains calm to analyze their offers and choose one of them.
Formalities related to the loan for building a house
Applications for a loan to build a house may seem a bit complicated to us. It is worth completing them with the help of a credit advisor at the bank where we are trying to finance our investment. Preparation of such documentation will be much easier under the guidance of a specialist and also less stressful for ourselves. As already mentioned, all documents required by the bank should be attached to the application. Their list may differ slightly depending on where you apply for a loan. However, most banks require from their potential clients:
- certificates on the amount of our income;
- employment certificates from our employer;
- annual PIT tax return if we run our own business;
- document confirming that we are the owners of the plot (entry from the land and mortgage register or notarial deed);
- building permit;
- construction project and cost estimate of the entire investment.
The application together with all documents is then verified by a financial analyst. This entire process may take several days. If the decision is positive, we will then have to sign the relevant agreement. However, remember to read all of its records very carefully. If we have any doubts, let them clarify the bank employee or legal advisor. We must be aware that a home construction loan is not a consumer loan, from which we have the right to withdraw up to 14 days after signing the contract. In this case, any withdrawal from the contract is much more complicated.
When will you receive credit from building a house?
Anyone applying for a home construction loan must be aware that the money obtained is not paid out in full. The sum awarded to us is divided into tranches, which will be paid to us as the next stages of building the house are completed. Therefore, when we receive a specific amount on our account, it depends strictly on the construction works schedule and whether we comply with our investment plan. The bank has the right to monitor the progress of work at all times, and if it finds any delays, the payment of subsequent tranches of the loan is often suspended. In some cases, the bank may also decide to impose a financial penalty on the customer or even to terminate the loan agreement if the delays are significant. Therefore, when creating a schedule of such work, let’s approach it rationally.