Home construction loans are one of the many home financing products that lenders offer to their customers. In general, when you think about a first home loan, you are dealing with properties that have already been built and put up for sale, and that the beneficiary of the loan wants to buy to use it as a main residence. The building loan , on the other hand, concerns houses still under construction, and both private individuals and construction companies can request it: there are some peculiar characteristics of this home loan, therefore it seems appropriate to offer a specific guide for home construction mortgages , in order to highlight how they work as well as indicate the best offers of the moment.
Building loan, what does it consist of?
There are significant differences between the home construction loan and the home purchase loan, particularly as regards the disbursement of capital. While in the second case the disbursement takes place in a single solution, once the property has been estimated by the expert and the maximum consideration as a percentage (generally not more than 80 percent) is defined, in the building loan
the allocated sum is paid out gradually , since the credit institution in a house under construction wants to constantly monitor the status of the works , in order to ensure their regularity. Generally, the first part of the amount of the loan is allocated at the end of the construction of the foundations, and then proceeds to subsequent agreed stages.
Features of home construction mortgage
The other characterizing elements of the building loan are more similar to those for the purchase of an existing property: as particular characteristics of the loan we have in general
- Amount that does not exceed 80 percent of the cost of construction (but on average it settles at 60-70 percent)
- Repayment duration from a minimum of 18 months to a maximum of 360 months
- Mortgage guarantee on the land where the house is built
- The cost of the loan includes preliminary investigation costs, stamp duties, appraisal and notary fees
- The loan also covers costs such as project design, procurement and safety charges, depending on the type of credit institution you are addressing
The documents to be presented
Let’s now see what are the documents to be presented to start the preliminary phase of the mortgage for building property. Here we will limit ourselves to offering generic coordinates, as some differences may arise between the different banks operating on the market, in relation to some specific certifications required.
- Copy of a valid identity document
- Tax ID code
- Income documentation (730 declaration, Unico form, pay slips, pension slip)
- Cadastral map of the land
- Building permit
- Deed of sale
- Notarial deeds
- Municipal permits
- Documents certifying the mortgage
- Cost estimates of the construction company
Building a house: are there any benefits?
The Italian State provides tax concessions for all those who access the building loan for a property that will be used as a main residence. Based on current legislation
you are entitled every year to a deduction relating to interest expense, accessory charges and revaluation fees equal to 19 percent on a maximum amount of 2,582.28 euros in total, a figure therefore lower than the 4 thousand euros set instead for related interest to the purchase of an existing property. The deduction is also limited to the interest expense actually paid in the reference year.
The disadvantages of home construction mortgage
According to experts, there are some disadvantages related to the application for a building loan for a house under construction, especially if it is a private individual who requests the loan compared to the professional builder, starting from the huge request for documentation, permits and concessions paid by the private individual, in order to obtain a project already approved before being able to contact a credit institution to request the loan. Among the other downsides we have:
- Difficult to quantify the overall sum of the total costs
- Initial expenses to be borne by the private individual
- Loan disbursed in tranches
- High bureaucratic costs
- Complex procedures for any changes in progress
Among the problems inherent in the building loan are the decisions of the expert who often do not take into account the needs and economic difficulties of the owners of the property under construction: it often happens that the beneficiary of the loan runs out of the necessary funds to proceed, but on the other hand singing if the work does not proceed, it is not possible to obtain the next tranche of the loan.
For these reasons and others, it is advisable to budget for sums higher than those that would be necessary to complete each tranche of work, even 20-30 percent more, to be sure. And if it should prove necessary to make changes during construction, for purely functional and aesthetic reasons and not necessarily for economic savings, a credit institution does not necessarily accept without obstruction, and in any case the procedure is very complex because it requires new resolutions.
Home loan acceptance from builders
A simpler method to buy a house under construction may be the assumption of the mortgage from the builder , instead of taking out a house loan from scratch. However, there are a couple of aspects to consider in order to evaluate the actual convenience of this takeover: first and foremost
it is possible that a credit institution may insert clauses that lead to an increase in interest in the event that a third party other than the manufacturer takes over the loan. Furthermore, taking over would involve a splitting of the mortgage , and errors and inaccuracies may occur to which attention should be paid: generally the builder obviously takes out only one mortgage on the entire building, to proceed in a second phase to the splitting from time to time. that the different housing units are sold. It often happens that errors occur so that you find yourself a share of the mortgage linked to another apartment than your own.
Construction mortgages: who to turn to?
There are many credit institutions that offer the building loan for home construction , but the conditions may vary depending on the type, so it is also possible to find additional benefits, such as for example a total coverage of construction costs equal to 100 for one hundred of the property, over the limit of 80 percent that instead characterizes the majority of home purchase mortgages. For home construction loans, you can contact:
- Savings banks
- Cooperative credit banks
- Rural banks
- Banking groups
Among the banks that provide for building loans of this type there is for example BNL , which provides for the assumption of all ancillary costs, including the appraisal, at its own expense, disbursing up to 75 percent with a maximum duration of 30 years. Mediolanum also offers a home construction loan that can cover up to 100 percent of the value of the property, with very interesting flexibility options such as skipping the installment or changing the amortization plan.
How to find the best building loan
The technological tools at our disposal allow those interested to be able to carry out an effective search to quickly find the best home construction mortgage offers , and thus evaluate the conditions offered.
The online comparators help us to compare in real time the best offers on any financial product, evaluating interest rates and other conditions applied on the building loan. It must be said that from the point of view of TAN and APR , as well as for the choice of the fixed or variable rate , there are no large fluctuations between the traditional first home loan and that of the building loan disbursed for a house under construction, but it can be useful. assess the other conditions, regarding flexibility, the expenses to be incurred and the methods of disbursement of the capital.
Home construction mortgages are a financing product that undoubtedly has merits and limits, so a private citizen could actually feel discouraged by the enormous bureaucracy and costs to be faced, considering that the building loan has this characteristic of disbursement in various tranches linked to the progress of the work. However, we must not be discouraged because it is possible to find good offers also in this field, and it must be said that above all the smaller banks, more rooted in the territory and often organized in cooperatives, offer really attractive conditions for those who want to build a house and decide to take out a mortgage or take on a part of it from the builder.