Do you want to go among the builders to fulfill your dream of owning a home? Then you also need the right property. But financing a building site is not without pitfalls. Below you can find out what to consider when financing land.
Financing options: Finance the house and property together or separately.
- Finance land and house together
If you finance land and house together, the total loan refers to the value of the land and the planned construction project. Joint financing and other construction loan services are possible if the planning of the new building is already very advanced: for example, if there are already drafts for the house or if a contractor is already commissioned.
- First finance land and build it later
Other builders, on the other hand, first ” fall in love” with a very specific property – for example due to the location – and do not yet have a concrete idea of the house that could later stand there. In this case, separate financing can make sense, after all, you should plan a construction project in peace and take the necessary time for it. However, with separate financing, you should pay attention to a few things.
How can I finance a property?
Various models of construction financing are eligible for land financing.
- A joint loan for house and land at bank A
If you finance land and house at the same time, you can take out a joint loan from a bank. This scenario presupposes that your plans for building a house are already advanced and that you are willing to commit yourself to a loan for your home for a long time. The following financing models can be considered for this:
- Annuity loan: The classic among loans is the annuity loan. You pay fixed monthly installments that do not change during the entire term of the fixed interest rate. The fixed interest rate deadlines usually extend over 5, 10, 15 or 20 years. Advantage of this predictable financing from Southern California Hard Money Lenders: The interest share decreases with each installment in favor of the repayment.
- Building savings loan: In the run-up to this loan, an earmarked savings contract was concluded. If this is ready for allocation – i.e. the saver has saved the minimum amount, the minimum term is met and the contract has received the required valuation number from the building society – you can apply for a low-interest building loan. The crux: It can usually take a very long time for the building savings contract to be ready for allocation – so it is usually out of the question for quick financing.
- Constant loan: This model is basically a combination of building savings loans and annuity loans, but without you having to conclude a building savings contract in advance. However, a constant loan is very expensive compared to other financing.
- A loan from bank A and later a second loan from bank B
If the actual house construction is still in the stars, but you already want to finance a plot of land, you should first choose the following model:
- Variable loan: The biggest difference to classic construction financing lies in the term of fixed interest rates: Instead of 5, 10 or even 20 years, the interest rate is recalculated every 3 to 6 months – so you can benefit from falling interest rates, but you have to expect higher costs in times of rising interest rates.
The advantage of land financing is obvious: You can terminate the variable loan with a three-month notice if necessary.
- Two separate loans
If you have already initiated separate financing of land and new construction, you can consider the following financing model for the home loan in order to remain as independent and flexible as possible:
- Loan splitting: This form allows you to reduce the interest cost for the second loan. They conclude a loan with a short term (and correspondingly better conditions) for part of the sum of the construction project and finance the remaining amount with a loan with a long borrowing rate fixation and low repayment. If you want to finance the short-term loan through another bank, the search will not be easy. If you know that you will be assigned a building savings contract or life insurance in the foreseeable future and can thus present security, your chances of doing so again increase.