As the name suggests, you can build or buy, renovate or modernize a house with a real estate loan – also known as construction finance. As a so-called special-purpose loan, a real estate loan is not freely available to the borrower. It must be used for its purpose. As proof of the proper use of the real estate loan, the bank requests documents, for example in the form of bills.
The purpose of the real estate loan has advantages for both you and the bank. The bank ensures that you use the money to purchase an equivalent in the form of a property. This means that the bank will get its money back even if the borrower can no longer pay the installments. By compulsory auctioning of the house, she compensates for the default. The borrower benefits from a low borrowing rate due to the special purpose. Because if there is a countervalue, the risk of default on the bank is lower and that rewards them with lower interest rates than with a freely available installment loan, for example.
Build a house, co-finance outdoor facilities?
If you want to build a house, you can finance the property and the property with a real estate loan. Most banks also approve outdoor facilities such as garden design, paving or a garage as part of a building loan. So plan such work right away. Feel free to use our budget calculator and find out how much credit you can take up within your budget.
In order to ensure that the borrower does not use the real estate loan for everyday goods, technology or travel, he usually does not receive the loan in one piece. You can get the loan bit by bit by submitting a copy of the corresponding invoices to the bank after the completion of certain construction phases. The bank then arranges the payment – either to your account or directly to the invoicing construction company.
Buy house and renovate
Of course, a real estate loan can also finance the purchase of an existing property – for example, if you buy a new building or an old house. In contrast to building a house, the full amount for the house will be transferred to you or the seller in one piece. To prove that you, the borrower, really used the money to buy the property, simply submit a copy of the purchase contract to the bank.
If you buy an old house, you can also pay for the renovation of the building or the modernization from the real estate loan. You can also apply for a lender bank loan as part of the real estate loan for modernization work that serves the energetic purpose or for an age-appropriate renovation. These loans are characterized by a low interest rate and one-time grants that you don’t have to pay back. However, the conversion measures with lender bank support are linked to certain conditions.
You cannot finance that with a real estate loan
Things that you usually cannot finance with a separate real estate loan include carports, retrofitted garages, garden houses or garden design. In addition to the equivalent value that the bank must provide as collateral in the course of a real estate loan, there is also a minimum amount for mortgage lending. This is usually 50,000 dollars. For example, if you have been living in your own home for some time and now want to build a garage or redesign the garden, the bank will not grant you a real estate loan. You can usually finance these things easily with an installment loan.
However, there is a way in which you can also do such work retrospectively as part of a real estate loan. When building a house, you may have taken out more loans than was actually necessary. If the construction is complete and, for example, 20,000 dollars of the loan amount is left over, you can receive it for free use by the bank. However, only if this has been contractually stipulated. If it is not contractually stipulated, non-acceptance compensation may apply for the amount not called up.