Find the right financing for house building
For many people, building a house is the biggest financial project in their life. In most cases, construction finance is required to be able to finance the project. Without a well-founded comparison, the financing costs can quickly get out of hand.
Minimal interest rate differentials often make a big financial difference. In addition, house construction itself requires a great deal of planning. But how can future builders make sensible approaches to cost planning and loan comparison?
Building a house is a big project – but the result is also a long-cherished dream of many people.
Specify wishes when building a house
When it comes to homeownership, prospective buyers should be clear about what they actually want. You should be able to answer the following questions for yourself:
- What type of construction should the house have (prefabricated house, solid house, wooden house, tiny house)?
- How big should it be?
- Which equipment features are important to me?
- How should the building and the outdoor facilities be designed?
- Which energy standard (energy-saving house, passive house) should my house have?
For a better overview of the possibilities, a look at the house catalogs is recommended. In addition, it is also worth visiting house building fairs and finding out about the latest trends. Only those who know all the options can ultimately make a really well-founded decision.
Get an overview of the construction costs
If the builders are clear about their wishes, it is a matter of cost calculation. The costs can be divided into different areas:
Cost of purchasing the property
If you want to build a house, you first have to buy suitable land. In addition to the pure purchase price, incidental purchase costs also apply:
- Real estate transfer tax (normally 3.5 percent of the purchase price)
- Brokerage costs (depending on the purchase price between 3 and 4 percent of the purchase price)
- Notary fees (approx. 1-3 percent of the purchase price)
- Land register costs (approx. 1.1 – 2.3 percent)
Preparation costs: never underestimate!
After the property purchase, the construction preparation costs follow. These include expenses for property measurement and property measurement and, if necessary, a soil survey. In addition, there are often costs for the development of the property to the water and electricity supply.
In addition, insurance costs should not be ignored. This includes:
- Building owner liability insurance (helps with property damage and personal injury to or through construction)
- Home insurance (protects the building against natural hazards, broken water pipes, and fire)
- Household insurance (covers damage to or theft of moving objects in the house)
Construction service insurance (covers damage to the structure, e.g. due to weather conditions and theft on the structure)
Construction costs: the biggest cost point!
One of the biggest cost factors is the construction cost itself. These can vary greatly depending on the desired type and provider. The biggest difference lies between a prefabricated house of a developer and a solid house, which is built by an architect. Both solutions have advantages and disadvantages:
|Prefab house over property developer||Solid house by the architect|
Emergency reserve: expect the unexpected
Building a property is a complex process that usually involves many people. For this reason, something unforeseen can always happen. Because appointments play an important role in accessing the construction loan, delays can cost a lot of money.
For this reason, it makes sense to create an emergency reserve that ranges between 5 and 10 percent of the construction costs. Should something happen then, usually no expensive additional financing has to be used.
Compare home loans and save money
Before building owners buy a home, they should first compare home loans from different providers. When comparing providers, a few tenths of a percentage point in the interest rate over the term make financial differences in the five-digit range. This has two important causes:
- Long terms (the interest rate is often paid over 15-30 years)
- High loan amounts (the interest rate is applied to loan amounts in the range from 150,000 euros upwards)
When comparing loans, however, it is not enough to just look at the interest rate. In addition, other aspects influence costs:
- The length of the fixed interest rate (term): The fixed interest rate describes a period over which the borrower pays a fixed interest rate for the home loan. Termination during this period is only possible if he pays the bank an expensive prepayment penalty. Long fixed interest rates are therefore particularly worthwhile when interest rates are low in order to secure them as long as possible. Unfortunately, banks often charge small interest premiums for long planning security.
- Initial repayment: Borrowers can have a say in their monthly repayment installments when buying a home. This consists of the interest and the repayment. Borrowers can set the initial repayment themselves. A repayment rate of 2 percent means that 2 percent of the loan debt plus interest will be repaid in the first year. The repayment portion increases later because interest is only payable on the remaining amount. A high initial repayment ensures a high repayment rate but reduces the costs considerably because the remaining debt falls faster and the interest accrued is also reduced.
- Equity: Equity helps twice with construction financing: on the one hand, the loan amount is smaller, on the other hand, a low mortgage loan value lowers the risk of default. This rewards banks with lower interest rates on the loan.
An architect designs individual houses for customers but is also more expensive than the developer with the prefabricated house.
Conclusion: plan the house construction exactly
In conclusion, it can be said that the construction of a house requires careful planning. Only those who are clear about their own wishes beforehand, precisely calculate the costs and make a comprehensive comparison of the construction financing can successfully complete this project at a comparatively low price.
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