You want to access the property, but you want a new house to your liking. The tailor-made you need is possible by having your home built.
To do this, it will be necessary to set up a loan dedicated to construction. Whether you go through a consumer loan or a home loan, construction loans must meet certain rules.
The stages of construction credit
Unlike buying an existing property, construction takes time. On average, there is one year between the construction loan application and the delivery of the house, with or without finishes to be made. In addition, some steps are unavoidable and their speed will condition the type of construction loan that the borrower uses:
A consumer loan if the amount of the project is less than 75,000 euros.
A real estate loan if the amount of the project is more than 75,000 euros.
Concretely, unless the land on which the construction takes place has been held by the buyer for several years, the construction loan goes through a real estate loan. Indeed, a set of land + house exceeds 75,000 euros, and a real estate loan is much cheaper financing than a consumer loan allocated to the work.
The construction project requires a division into four phases, namely:
- The purchase of the land and its possible servicing
- The issuance of a building permit for the real estate project
- The construction of housing, usually a house, called “out of water, out of air”
- The finishing of the house from walls to ceilings and the installation of integrated comfort equipment
Real estate loans will therefore be chosen in 99% of cases, that borrowers buy on plan in VEFA (Sale in the Future State of Completion), that they build their own house, and that they use a CCMI (Individual House Builder Contract).
Conversely, if the borrower buys land without an immediate construction project, he will be able several years later to finance the future home either by a real estate loan or by a work credit, depending on the amount of the project.
Let’s focus on construction real estate credit, which borrowers mainly use, in particular because of its lower interest rate.
Repayment of construction credit
In order to repay his construction credit, the borrower has several options before him during the construction phase. Each has its advantages and disadvantages and the choice must be made knowingly. Explanations of the solutions proposed by lending banks to adjust the terms of payment of deadlines according to his personal situation.
Immediate repayment of the credit
Сonstruction loans in california are repaid without any adjustment, so the amount of maturities increases as the funds are released. No delay is planned and this is by far the cheapest solution for the borrower, since he repays interest and capital from the outset.
On the other hand, the household must be able to cope, which can be difficult, especially if it has a double rent to pay to stay for the time of construction. However, we recommend this option if you have the necessary savings or are accommodated for free, for example.
Partial deferred repayment of the credit
The borrower begins to repay his construction loan and monthly payments increase as funds are released. However, it only reimburses bank interest.
The capital will only begin to be amortized upon delivery to the construction site. If the advantage is to benefit from reduced monthly payments, the disadvantage lies in the payment of additional fees to the bank, with so-called interim interest.
Full deferred repayment
The loan is simply suspended during the time of construction. The borrower, therefore, has no capital or interest to repay. With the home loan in place, it simply has to pay the payment of borrower insurance contributions.
While this solution is simple to implement and allows the borrower to bear as few charges as possible, it is also the most expensive of all options, due to the deferred and payment of interim interest.