Building Projects

Financing solutions for private building projects - for the land plot purchase and the construction of a house.

Building Projects

finbird supports customers who want to buy a plot of land, build their own house on it or build a turnkey house with a developer and are looking for financing for the building project. We help clients with finding the right mortgage concept for the building project and aim to reduce the complexity of the transaction. We offer advice that is specialized in financing building projects for single-family or two-family houses or apartment buildings.

Mortgages for Building Projects

Your own building projects offer you the opportunity to design your personal living space according to your own needs and preferences. However, the process of getting there can be complex and involves various planning, budgeting and execution phases. Detailed project planning and an understanding of the construction costs of building a house are important to ensure that your wishes can be realized in the end.

Construction mortgages enable home builders to secure the necessary financial resources to cover the costs of building projects, from the groundbreaking ceremony through all construction phases to completion.

Unlike traditional real estate financing for the purchase of existing homes, construction mortgages are structured slightly differently and are more closely aligned with the needs of builders who want to build a home. Construction mortgages provide a financial framework that supports the construction process through a staggered payout structure that is designed for the various phases and progress of the building project. This phased funding ensures that funds are available when they are needed.

Home construction can be supported by government-subsidized loans and grants. In Germany, public funding for building projects is provided by the KfW bank (Kreditanstalt für Wiederaufbau). These public funds are primarily intended to support the construction of energy-efficient buildings and can reduce the total cost of financing a home. As a rule, government funding is subject to compliance with certain criteria and energy standards.

An overview of government funding programs relevant for new construction projects can be found on the website of the Kreditanstalt für Wiederaufbau.However, since rules and regulations are constantly changing, it is recommended to speak to an expert who can effectively inform borrowers about the current set of rules for KfW loans, the eligibility of a project and its suitability for certain funding.

We at finbird check the integration of government funding options for each financing concept and, as part of the consultation, give our customers a comprehensive overview of the funding and financing options that can be applied to their new construction project.

Financing Cases

A married couple had taken out a mortgage to build a single-family house. During construction, material costs increased and the originally planned disbursements during the construction period had to be adjusted. The calculated construction cost buffer was not sufficient to cover the cost increases in full, but the financing bank was willing to provide the remaining amount in an uncomplicated and subordinated manner. The project was delayed, but was ultimately completed on schedule.

A family wanted to build a new house that met current energy standards. In order to receive suitable KfW financing, the energy efficiency of the building project had to be confirmed by a qualified energy expert. This had to be done within a very short time before interest rates were raised. In addition, it was important that the regulations for the self-contained nature of the residential units were adhered to. The building project was quickly confirmed by an energy expert and the mortgage request was submitted on time. After completion, the home will be used by the family as their own residence with an additional rental unit.

A family built their dream house in a suburb of Brandenburg. Halfway through the construction, unexpected contamination on the property required additional preparatory ground work. The mortgage taken out had planned for a sufficient buffer to cover the additional costs of cleaning up the contamination without the need for any costly additional financing. This meant that the project could continue and be successfully completed, with only the outdoor facilities being implemented a little later than planned.

FAQs

What is a construction mortgage?

A mortgage is a special type of financing for builders who want to build a home on their own property or on a turnkey basis with a developer. The building loan provides the financial resources to implement the building projects throughout the various construction phases.

How do construction mortgages work for building projects?

Unlike regular mortgages, the funds are released in stages as the construction project progresses. Borrowers usually only pay interest during the construction phase and only begin to repay the interest and principal once the building project is complete, the mortgage has been fully drawn down and, in most cases, the keys have been handed over.

What are the advantages of a construction mortgage for building a house?

The fact that the entire construction financing amount is not paid all at once, but rather that individual loan amounts are drawn down in tranches, means that the entire loan installment does not have to be paid during the construction of the house. This can ease the burden on borrowers, especially if rental costs still have to be paid during the construction of the house. In addition, the risk of a building project is distributed between the construction company and the client, and it is ensured that the financial resources are only made available when certain construction progress or milestones along the project have been completed.

How do I get a building loan to build a house?

To qualify for a construction loan, you must provide detailed building plans, cost breakdowns, a certain down payment, and sustainable income to service future loan installments. Lenders will review the viability of the financing and your ability to repay the loan before approving a loan. In particular, your credit history, financial situation, and the total costs of the building project in relation to the value of the home will be taken into account.

What are KfW funds and how are they used for new buildings?

KfW loans are public development funds that are made available to private builders to buy or build residential property. These funds may include attractive conditions such as low interest rates or repayment bonuses and are most commonly used to build or purchase energy-efficient homes. It is possible to qualify for a KfW loan for building projects undertaken by the owner as well as for prefabricated houses. In most cases, the purchase of a property is not eligible for funding.

How can I get a KfW mortgage for a new building?

To receive a KfW mortgage, the building project must meet the KfW's energy efficiency requirements. Applicants must submit building documents and cost statements for a credit application, which are usually prepared with the help of an energy efficiency expert. The energy consultant specializes in energy-efficient buildings and supports and supervises the building project. Compliance with these rules and regulations is an important prerequisite for qualifying for a KfW mortgage and for integrating such a tranche into the overall financing structure of a building project.

Are there different types of mortgages for building a house?

There are various types of financing and financing products for construction projects. Common products include a regular annuity loan with a no-payment period during the construction period or an initial variable-rate mortgage that is taken out to purchase the land and converted into a long-term fixed-rate loan after construction is completed. Each type of financing has its own particularities, which depend on the respective building projects and their schedules.

What costs are covered by mortgages for building projects?

A mortgage for building projects usually covers all costs associated with building a new house, including labor costs, material costs, costs for planning permission / permits, and often the purchase of the property if it is not already owned by the builder. Mortgages should be structured in such a way that they also include cost buffers for unexpected delays during the construction phase.

Can I include the cost of the land in the mortgage?

Many lenders allow the costs of purchasing a property to be included in a mortgage. For example, borrowers can take out a variable-rate mortgage to purchase the property before converting this loan into a financing structure with a long-term fixed interest rate by selecting and commissioning a construction company or self-build. If the builder-owner has already found the construction company or architect for the construction when purchasing the property, the mortgage can also be structured from the outset as a loan with a long-term fixed interest rate, taking into account the availability periods during the construction period.

What happens if building projects exceed the budget?

If building projects exceed the estimated costs, borrowers may have to negotiate an additional credit tranche or follow-up financing with the bank that originally provided the mortgage, or seek financing from an external lender. Ideally, every original financing package should include a cost buffer to avoid follow-up financing, which is usually more expensive.

Financing Process

As part of our process for private building projects, we start with an initial consultation to discuss the scope of the project, the financial requirements and the objectives of the building project. We then guide you through the various financing options for a mortgage to determine the right financing concept for your project. In doing so, we check the possibilities for integrating relevant KfW funding for each project. We take care of the credit application for you and ensure that all the necessary documents are available in good time and in the correct form for submission to the lender so that the loan can be approved in good time. As the building project progresses, we are available to disburse the funds until the building project is completed.