Construction Financing Germany

Whoever wants to finance the construction or purchase of real estate in Germany is really spoilt for choice: a variety of lenders tout for the favor of the interested parties with constantly new offers. It’s rather easy to lose track of today’s finance-jungle – in particular when the interested parties reveal a knowledge gap as recent surveys have shown. Unless you are a financial expert with a comprehensive knowledge, it is advised to contact a financial professional. If one approaches a mortgage broker, his service is actually for free: the broker gets his commission from the finance company, where, the mortgage agreement is settled in the end. That leads us to a very crucial point: How does construction financing actually work and what is important to always keep in mind?

Prior to Mortgaging

Generally mortgaging does not start with signing a mortgage agreement, it starts way earlier. Prior to the actual financing, the decision to either buy or construct the real estate has to be made. If it’s the choice to construct a real estate, it’s now the time to decide on what kind of real estate it should be. Depending on the type, but also on the location and the extent of realty the costs can vary. If you decide to purchase a home, you can either search on your own for the house of your dreams or contact a real estate agent. His services safe you a lot of time and effort but are rather costly which can increase the cost explicitly because they have to be settled by the buyer. Regardless if it is construction or purchase: in addition to the costs for the property and the real estate there are always extra expenses. Such extra expenses include for example insurance contributions, real estate transfer taxes, solicitor’s – and broker’s commissions and the costs for the entry in the land register.

The appraisal of costs and additional expenses is important but knowing how much equity capital is actually available is of equal importance. The difference that emerges between overall costs and equity capital is closed by mortgaging. Nevertheless, the debtor should bring up as much equity capital as possible. Loan over value of 60% is considered as ideal. Full financing is possible, but those are usually granted to applicants with the best creditworthiness and only up to the purchasing price (without additional expenses).

Procedure of Mortgaging

Once the amount of required capital for constructing or purchasing a real estate is defined, the next step leads you to the bank of trust. Before filing a concrete application for financing it is required to compare several offers to find the financial institution with the best conditions. Consulting a company promoter is advised because he isn’t only capable of scanning the market quickly and extensively, he can also help in filing the application and assist in negotiations with the bank. Obviously it’s in every real estate owner’s assessment to use range of service accordingly.

The Bank examines all the handed-in documents such as proof of earnings certificate, purchase documents of the real estate or the estimation of costs provided by the construction company. With adequate creditworthiness and a plausible financial planning nothing stands in the way of the authorization of the loan.

In this country only after you were granted the loan, you sign the contract with the construction company respectively the purchase agreement. A solicitor is required as well as the land registry office: the purchase agreement is carried out by a solicitor who among other things is responsible that the contract is judicially balanced. His involvement is by the law. The property and in the case of a purchase the real estate as well have to be signed over at the land registry office. Here is where the both the ownership structure and the land tenure are recorded.