Recently, houses and apartments with gardens have become more and more popular. In the face of constant limitations, for many people, their own garden becomes a chance to spend time safely outdoors. Spring is the best time to start building a house, so today we will focus on the financial aspect of such an undertaking.
Preparations for receiving a home construction loan should begin with consulting a financial expert and checking our creditworthiness .
Once we know how much money the bank will be able to lend us, we move on to the next step, which is to prepare all the necessary documents. These documents allow the bank to make sure that the construction is carried out in accordance with the provisions of Polish law.
Credit documentation
When applying for a home construction loan, we must provide:
- Notarial deed confirming the ownership of the plot on which the construction of the house will begin .
- Extract from the land and mortgage register of the plot (the document can be generated electronically).
- The construction permit decision with a final clause.
- Extract and excerpt from the land register (the document is valid from 1 to 12 months, depending on the bank; SA requires an annotation that the document is the basis for an entry in the land and mortgage register).
- Construction project.
- Cost estimate and work schedule according to the bank’s template.
- Construction log (copy of the first page and all pages with entries).
- Agreements with contractors (as long as we do not carry out construction works independently, and are performed by a construction team)
- The appraisal report prepared by an independent appraiser, if the bank accepts such a document.
From a financial point of view, two documents should be noted – the construction cost estimate and the appraisal report.
Construction cost estimate
It is a document drawn up on a bank form and therefore often causes a lot of trouble to customers. Determining the total amount of the loan is usually easy, but filling in the table with individual construction elements is a more difficult task.
Therefore , it is worth filling in such a document together with the construction manager. Thanks to this, we will be sure that all costs are properly estimated. This is very important, because with a loan for several hundred thousand zlotys, even a dozen or so percent underestimation means tens of thousands of zlotys of costs that did not appear in the budget.
In such situations, we often have to use a quick unsecured loan, and due to the high interest rate and high installment, this is not a favorable solution. The analysis of the construction cost estimate by the bank is to prevent just such situations. According to the banks’ internal calculations, the minimum cost of building a square meter is PLN 2,800. As the average size of the houses built is 150 m 2 , cost estimates are usually prepared for amounts not lower than PLN 420,000.
It should be remembered that the cost estimate also includes works performed by ourselves and works for which we plan to pay with our own funds. It is therefore possible to apply for a loan of half the amount specified in the cost estimate – for example, when more than half of the construction works have already been completed.
An appraisal
It is a form of real estate appraisal prepared by an appraiser. Some banks prepare it on their own, and in most cases, external valuation is also accepted. It is worth using the latter option, because the cost is similar, and we are sure that the expert or expert represents our interests. What’s more, we will receive the valuation within a week, and the information about the value of the property is very important to us , because the maximum loan amount cannot exceed 80-90% (depending on the bank) of its value.
Loan tranches
The bank will not pay us the entire loan amount at once – depending on its amount and the current value of the property, the payment will be divided into 2-4 tranches. It is worth making sure that the amount of individual tranches will be sufficient to cover the costs of works planned in a given period.
Documenting the use of the loan
The condition for the payment of the next tranche is documenting the performance of works financed from the funds from the previous one. We have to commission an inspection of the property, the documentation of which with photos goes to the bank, we do not have to additionally present contracts or invoices. Then the bank verifies the progress of work, and if it is in line with the schedule, we receive funds from the next tranche.
How much time do we have to build?
The payment of the last tranche of the loan is usually limited in time, the bank usually obliges us to complete the construction within 24 months .
Grace period
Loan installments consist of two elements: principal and interest installments. During the application of the so-called grace period, the bank does not charge a principal installment, but only an interest installment, therefore we pay lower installments for some time. In the case of a loan for the construction of a house paid in tranches, the grace period is valid until the full amount of the loan is disbursed. The grace period is an undoubted advantage of payment in tranches , but it should be borne in mind that the debt balance does not decrease throughout the grace period.
Extra savings
A home construction loan is usually just as attractive as any other home loan. It may even turn out to be even more advantageous, because some banks have very interesting offers for energy-efficient houses . The bank analyzes information on the expected demand for thermal energy and on this basis verifies whether our house will actually be energy-efficient.
It is worth taking this into account when planning with an architect – the appropriate energy performance of the building will allow us to save from several to even several thousand zlotys on loan interest.
Looking only at the list of documents required to obtain a loan, we can be afraid that this is a difficult and complicated process. The credit procedure is extensive but has very clear rules. If we need support, we should seek help from financial experts in banks or financial intermediaries, such as, for example, Lendi. The expert will explain the basic issues and help us determine whether we meet the banking criteria.
