Everyone, sooner or later, in the course of their lives find themselves having to become familiar with the concept of a mortgage, linked to the purchase or renovation of property: in fact, credit institutions can grant various types of mortgages according to needs. Of the customer and his creditworthiness.
There are, for example:
- Loans aimed at financing the purchase of a property
- Liquidity loans aimed at requesting money for extra capital
- Subrogation mortgages
- Building loans: specially designed for the construction or renovation of a home
We shift our focus precisely on the building loan, which concerns houses under construction or renovation, clarifying first of all that both individuals and companies can request it.
If you want to discover all the specific characteristics inherent in this type of financing, we recommend that you read our guide.
Below you will find information on:
- Advantages, disadvantages and concessions for a building loan
- How to apply for a building loan
- How much does a building loan cost?
- Guarantees required
- How the amortization plan works
Let’s proceed step by step.
Building loan: what does it consist of?
The building loan is essentially a type of contract that regulates the loan granted by the bank to those who decide to build or renovate a building, called the borrower.
But in addition to the construction or renovation of a property, this type of mortgage can also be requested by those who intend to invest in refurbishment and/or renovation works in compliance with anti-seismic standards, for their home, or to increase efficiency and / or energy saving.
What distinguishes the building loan from other types of mortgages is the method of disbursement. In fact, in the building loan, the sum is disbursed in instalments based on the progress of the construction or renovation works. In this way, the credit institution is able to prevent any insolvency on the part of the creditor in time.
If it is an existing structure, the property acts as a guarantee in the event that the borrower fails to repay his debt. In this case, the bank proceeds by auctioning the building in order to recover the borrower’s defaults.
This all changes when a building loan is granted. In fact, construction or renovation works involve a consequent variation in the real value of the structure.
It is important to know that for the bank, granting a building loan involves greater risks in relation to the repayment of the loaned capital, as construction work could be suspended or, worse, blocked for any reason.
Same thing with regard to the restructuring, a process along which the contracted construction company could run into difficulties related to the completion of the works.
Therefore, precisely in order to avoid the described problems arising, the credit institutions disburse the loan based on the progress of the work, therefore in SAL.
The capital is therefore disbursed step by step, only following a technical appraisal that allows verifying the conformity of the works carried out according to the agreed methods and timescales.
Building loan: advantages, disadvantages and concessions
The Italian State grants tax breaks for individuals or construction companies who request and manage to obtain a building loan for a property that will be used as the main residence (“first home loan”).
According to current legislation, the borrower is entitled to a deduction relating to the interest payable actually paid in the reference year, the accessory charges and the revaluation fees equal to 19% on a maximum amount of € 2,582.28 in total.
But in addition to the facilities and advantages mentioned above, according to some experts, there are some disadvantages inherent in applying for a building loan for construction, even more so if the applicant is a private individual.
The main negative points for this type of financing are:
How to apply for a building loan: the necessary documentation
To apply for a building loan it is necessary to present a series of specific documents, such as:
- Copy of a valid identity document
- Fiscal Code
- Income documentation
- Cadastral map of the land
- Building permit
- Deed of sale
- Notarial deeds
- Municipal permits
- Documents certifying the mortgage
- Cost estimates of the construction company
In addition to this, we remind you that in case you want to apply for a building loan for a new building, it is necessary to present the cadastral map of the building land and the documentation that certifies the purchase.
While applying for the building loan aimed at the renovation of a property, the renovation project must also be exhibited.
How much does a building loan cost?
Usually, the building loan has a medium-long term. It can reach up to 30 years, but clearly, the lower the sum requested, the greater the possibility of reducing the duration of the loan. In general, banks do not disburse more than 80% of the property’s value.
In this case, the bank’s technical office will deal with this specific operation, taking care to check the different estimates of the various construction companies and/or projects relating to the renovation of the buildings.
The experts will check the documentation so that it is complete and thorough, and that the disbursement of the building loan is successful.
In addition to this, it is up to them to check the progress of the work and assign the value to the house under construction or renovation. Based on this, the amount of each tranche will then be established.
We also remind you that the building loan provides for preliminary investigation and management costs, i.e. fixed costs, which must be added to the cost of the loan, notary fees and technical appraisals. On the other hand, the loan covers the tariffs relating to the design of the works, the procurement and the safety charges.
Guarantees required for a building loan
The building loan does not provide for the registration of the mortgage on the house to be built, since its non-existence makes it impossible to take out the mortgage.
In fact, the building land is not considered by the bank as an immovable property that with its value can guarantee it the repayment of the money disbursed as a loan. In most cases, in fact, the credit institution does not issue mortgages for the purchase of the land alone, but finances the private individual or company that already owns the property with a building loan and decides to build a housing structure on it.
It is therefore important to know that, to obtain a building loan, whether it is aimed at the construction or renovation of a property, it is necessary to present guarantees.
In the case of a mortgage for a new building, you will have to proceed with the registration of the mortgage on the land on which you will be working. While in the event of renovation, the mortgage will be placed on the property subject to renovation.
In addition to the mortgage, an economic guarantee is required. In this sense, the bank will require the debtor to submit, by means of payslips and tax returns, an income situation suitable for possible repayment of the loan.
Small note: the bank requires the paycheck from employees, while freelancers and entrepreneurs are required to produce documentation that certifies their sources of income. Subsequently, the bank will examine the economic condition of the applicants, in order to establish a consequent repayment plan.
How the amortization plan works
The repayment of the building loan varies according to the needs of the lender and the internal policy adopted by the credit institution granting the loan. In general, repayment takes place in monthly instalments, but in some cases, it is possible that the bank opts for an amortization plan that provides for quarterly or half-yearly instalments.
Building loan: the financing you need to build or renovate your home
In this article, we’ve shown you everything you need to know about building loans for building and renovating properties.
Financing products undoubtedly have great advantages and benefits, as well as strengths and limits; but you must not be discouraged for this!
You will find the right offer for you and achieve what you have always wanted: build the house of your dreams or renovate and live in a building that you have always wanted to return to its former glory.