Construction of real estate is a considerable financial challenge. See how much money you need and where to start building your house.
Almost everyone dreams of their own apartment or house. However, this is not a real desire for everyone. The main obstacle to buying or building the proverbial four corners is the lack of funds. One of the most attractive ways out of a financially unfavorable situation is borrowing a few pennies. Therefore, more and more Poles decide to enter into a commitment.
Among the most popular products of institutions from the financial sector, loans and credit invariably dominate. Most consumers confuse both terms and think that they mean exactly the same thing. Meanwhile, they differ a lot, and this awareness can often protect the debtor from the unpleasant consequences of being bound by a contract with a loan company or a bank. You can read more in the article Credit and loan – what are the differences .
What is a loan?
In a nutshell, the term credit covers a written contract between the borrower and the bank. It consists in the fact that the banking institution undertakes to make available the specific amount indicated for the period specified with the borrower. The latter, in turn, undertakes to allocate the funds obtained to the indicated purpose. It is also his duty to return the money together with accrued commissions and interest in the given period.
There are several types of loans. The two basic types are credit for business entities and natural persons. The latter is divided, among others, into consumer and housing loans, including mortgages. When considering building a house or buying a flat, the most sensible solution would be to focus on your mortgage.
Mortgage – what is it?
It is characterized by longevity. The collateral for this type of loan is the mortgage, which is established, for example, on the ownership of a specific property or the right of perpetual usufruct. For this reason, the bank obtains a solid guarantee that even if the borrower will not be able to repay the debt, he will be able to enforce the equivalent of the liability by taking over the property in debt recovery proceedings. Mortgages are an attractive product for consumers due to lower total costs compared to cash loans.
It is a large investment, reaching several hundred thousand or even several million. Most of us dream about their own home, but not everyone can afford a plot, let alone erect a building. The aforementioned mortgage loans come to the rescue. However, this option is reserved for consumers with a good credit history and high ability to incur liabilities. In this case, you also need some own contribution, i.e. funds that cannot come from a loan, but from our savings.
Mortgage and alternative solutions
Many of us associate the construction of a house with a mortgage contract. Meanwhile, more and more banks are introducing the so-called loan for building a house into their offer. The solution consists of two elements. At the first stage, when we carry out construction works, the liability takes the form of a construction loan. In the next, after living in the house, it evolves into a mortgage.
Home construction loan – basic information
Each institution approaches this matter in a slightly different way. Loan offers may therefore differ in total costs, but also in the method of assessing creditworthiness. For this reason, a good solution would be to contact a bank consultant who will explain the details of the home loan. Lenders usually require consumers to have Polish citizenship, a valid ID card, and to reside in the territory of the Republic of Poland. The list of necessary documents to be submitted will certainly include: certificate of income and employment, tax return or notarial deed confirming the ownership of the plot on which the house is to be built. The cost estimate and the construction design, as well as the decision on the building permit or permit may be of great importance.
First a plot, then a house
So we can see that the mortgage from the one intended for the construction of the house differs in several elements. The basic one is that in the case of the first one, we do not always have to provide the bank with building permits or confirmation of land ownership. A banking institution usually needs several days to make a decision. If it turns out positive, the borrower will be left with nothing more than to wait for the transfer of the first money. We should remember that in the case of this type of liability we do not apply the provisions of the Consumer Credit Act, but banking law! In practice, this means that if we sign, we cannot benefit from a two-week notice period!
Payment in tranches
While in the case of other loans, the bank transfers all borrowed funds to the borrower at once, while the loan for building a house is paid out gradually. The institution at each of the construction stages will settle us on the progress of work and support us with the next tranche. Therefore, it will be necessary for the borrower to regularly provide invoices and evidence of progress at the construction site. Otherwise, the banking institution may even suspend the payment of further funds or impose a fine on the consumer for not completing the task on time.
During the construction period, the borrower is not obliged to repay the receivables. The grace period is usually two years. After completion of construction and commissioning of the property, our commitment will gain a new, mortgage character. That is when the loan needs to be settled. Importantly, all interest is charged on the difference between the outstanding amount and the valuation of the property, which is treated as a kind of own contribution. The collateral will expire only after the entire commitment has been paid.
Building a house with or without a loan?
It all depends on the wealth of our wallet and the amount saved. The first step to take before entering into a contract with a bank is a thorough analysis of our situation. It is not only about material matters, but also professional or personal. Remember that we are the ones who make the decision to commit. It’s best to think about all the pros and cons and use common sense. In this context, we recommend one of our texts titled 3 iron rules for informed lending.
Home loan – is it worth it?
Many ask themselves: is building a house with a mortgage a profitable decision? With relatively steady income and reliable employment, credit can be a good option, especially for people who need quick cash. Mortgages have high amounts and a long repayment period. Many families can forget about building their own home without the help of the bank. Putting away several hundred thousand zlotys is almost a miracle. However, if you decide to take a loan, before visiting a bank branch it is worth reading the text 7 ways to increase the chances of getting a loan . Having prepared effective arguments, we will receive money immediately. However, if we have too low creditworthiness, you can take advantage of attractive loans at any time. Of course, they will not be as huge as a mortgage, but at the initial stage of construction every penny is at a premium.