Lately, we have been talking about lending solutions used to build a home. The discussions revolved around non-performing loans and dream homes falling into the hands of others. We talked about how to build a house. Now I would also like to explain how to finance it responsibly. This is a house on its land and not an apartment in a shared building. For many borrowers or those who wanted to, it was much more convenient to plan the construction of their own house than to buy an apartment in a block of flats. I can say that I support this reasoning.
I’m trying to help you understand and plan ahead. We will also go through the risks and opportunities that appear in such a project of our own. I wrote several articles and included them in the financial category because they deal with the idea of budget. Proper budgeting and financing of a property is an extremely important issue. In vain do you build a house that never ends. Alternatively, it can get into the hands of the banks, without ever being able to live in it. It would be a little more shocking to lose a block of flats.
How much should you borrow or borrow?
Before I advise you on construction loans, I want to give you a word beforehand. Honestly, this is perhaps the most valuable piece of information in the whole article. Try to remember the amount of 28% of the income. This 28% is 28% of your permanent income. I will refer to 2017 for the average salary in the net economy. In 2017, the salary on the net economy is 530 Euros. 28% of this amount means 148.4 Euro. This means that if you are a single person and you want to build or buy a home for yourself, then it is good that your rate does not exceed the amount of 148.4 Euros .
If you have a legal relationship, so you are married and you choose to buy a house with your partner, this rate can be doubled. You will probably think that you in particular have a higher salary and that you deserve more. I want to tell you that life is full of surprises, and home equity loan is a very long-term commitment. You probably won’t have the same salary for 30 years. It can get bigger, in which case it won’t be a problem. If he will be smaller, then it will be a problem because you risk losing your house.
The house built on its own generates a greater emotional attachment than an apartment purchased from an uncle. 148.4 euros would mean that a single Romanian can afford a house of about 30,000 euros. And that a couple can afford a house for about 60,000 euros. Many real estate developers build apartments and studios fixed on these budgets. They know that there are amounts that can be accessed by the masses. On another occasion, I explained to you what is the purchasing power, when it comes to residential space? There I mentioned why it is good to build for medium budgets.
What are the risks of building a house compared to a purchase?
When you take out a loan for the purchase, things are simple at first glance. The house exists, and the money is going to appear. Assuming you did not choose an apartment that starts to deteriorate immediately after the purchase, that is a real estate and an investment. In the case of construction, loans are not as easy as those for purchase. The bank will impose certain conditions to ensure that you will build that building. Whether the construction is done on its own or by a construction company, the bank will provide the money in installments, according to a pre-established plan.
The bank will not hand over the cash. It will allow you to send money from your credit account to the account of the building materials manufacturer, or other suppliers. Banks will determine what percentage of the amount awarded will have to be justified in this way and how much will not. It can be established, for example, 80% of the money as bank payments for suppliers and 20% in cash for the labor. At some banks, you can get a grace period, usually 12 months. Then comes the payment of installments. This means that you have to build in these 12 months, and any delay will cost you money.
Other banks will charge you for amounts that were not consumed on time by applying a fixed fee. Most of those who apply for a home loan plan are self-employed. If you do not have money saved, you may need that grace period. I want to tell you that it is very important to keep every receipt, invoice and proof of payment. The bank will ask you to justify the expenses for that 80% of the money. If you are unable to justify these costs, your credit agreement may be canceled and you may need to repay the amount immediately.
Establishing the relationship with suppliers in the context of on-site logistics
Contact construction or service providers before you go to the bank to sign a credit agreement. Request email offers in writing. After receiving the offer, discuss with the supplier and request the signing of a contract stating the delivery time and location. Penalties for delays may be imposed on that contract. You should always make sure that the penalties you impose on the provider are higher than those imposed on you by the bank. If the supplier does not want to sign that contract, then it is recommended to go to another supplier, even to one abroad.
When you build on your own and have no experience, you will find yourself in a situation where you have not budgeted the time for the implementation of some works correctly. I would like to draw attention to the delivery of concrete. Concrete is a time-sensitive material. In the article How much does a concrete figure cost? I have explained some of these aspects. In the article Building Materials Centralizer, I explained that you need a centralizer that will help you keep track of deliveries. A house of 60,000 euros will have a lot of deliveries.
It is important to understand that you need to discuss with the supplier the issues related to unloading the materials and taking them to the yard. If you leave them in front of the gate, then you run the risk of being left without them overnight. This is very important! A contract is needed that mentions this. When you pay out of pocket, it is simple because the supplier will not be paid if he does not keep his promise and contract. When you have credit, things get complicated because you have to pay a commission if you don’t spend the money on time. Pay close attention to this aspect.
The existence of a project and its observance
Before you apply for the financing loan for the future construction, you need to have a project. This project is done with the help of an architect. After long discussions with the architect, you will reach the situation where you have a project and a need for materials. It is important to respect the project. If the money was his own, then non-compliance with the project, depending on the violation, would have attracted a fine. When the money is from the bank and the loan guarantee is with the building built, then the bank could have serious dissatisfaction. Banks will keep an eye on you even after you have finished building.
If you want changes in the home, you need to get approval from them as well. The reason is that they do not want to risk losing the value of the property for the changes you want to make. I try to say that you are not allowed to change your mind about the choices made except in the design and enunciation phase of the project. And after the construction, you can make changes with the consent of the local authorities and the bank. In general, it is not good to change your mind during construction, regardless of the type of financing.
Once you have established some main steps such as the number of levels, the type of main construction material, the footprint of the house, etc., then decisions can be made on those fixed details. When such a fixed detail changes, chaos is hard to predict. Much bigger mistakes can be made when you do things by ear. Due to the credit, the bank will penalize you for any mistake. First, there will be the material loss, then the loss of time, and then the financial loss in the form of the delay fee applied by the creditor.
