Mortgage for home construction: loan options, conditions
Mortgage for the construction of a private house is gaining popularity because a private house is seen by many people as a far more promising alternative than even a comfortable city apartment in a good area. The reasons for this are fairly obvious:
- Private residential building is its own sovereign territory, which stands by itself and is not located inside a giant residential “anthill”, and therefore there is no need to endure all the “charms” of multi-family housing – a mode of silence at night, a neighbor’s drill, threats of flooding and other
- The advantage of the house over the apartment is that there are literally unlimited possibilities for planning and redevelopment – you can equip a private residential building in its own architectural plan, as well as remodel it. In an apartment, however, the degree of freedom is much lower, since permission is required from the housing department for the demolition / installation of walls, and many design solutions have to be abandoned due to the threat of damage to the load-bearing walls;
- a personal home is not only the area of the house itself, but also necessarily some kind of house territory that can be used in a variety of ways, for example, to organize a fruit and berry garden on it;
- Finally, a private individual house is perceived by many as a more prestigious form of housing, which goes back into the history of human dwellings much deeper than the apartment, which appeared literally in recent centuries with the emergence of cities of the modern type.
Basic loan options for building your own private house
But the problem is that in Russia very few people will collect money in order to simply take and acquire land, hire a construction company and build “their own fortress”. Even the average two-room apartment, most people are forced to purchase a mortgage. Not to mention a private house.
Therefore, for 97% of those who wish to acquire personal housing in the full sense of the word, there is only one way – to the bank. Practically all known banks are financing private housing.
However, not all present the entire list of possible offers in the mortgage lending sector, which concerns private homes. In total, there are 4 types of credit for the construction of private residential space:
- consumer credit for construction;
- a classic mortgage option for building a house;
- housing loan with additional collateral;
- special mortgage programs with the condition of partial repayment of debt by means of maternity capital.
Mortgage for construction in general is the most “cumbersome” form of mortgage. Banks are quite at risk here, so tough conditions are being put forward to borrowers. So, quite often there is a “floating interest”, that is, the bank has the right to change the size of annual interest during the period when the client repays the debt.
Of course, almost always upwards. But since each of the types of mortgage lending has its own characteristics, its own pros and cons, it is necessary to disassemble each individual in detail. Consumer credit is the most common form of bank lending money to customers.
Consumer lending takes up almost half of total lending. Both in private and in state banks. The reasons must be sought in the features of consumer credit. These same features make the use of this form of lending in private residential construction rather limited. So, consumer credit is characterized by the following points:
- The relative ease of obtaining and processing. If the client has an active salary card of the bank, then in this institution they can provide him with a consumer loan on two documents – a passport and a second identity document (for example, a driver’s license). But when requesting sufficiently large amounts (over 100 thousand rubles), even in the consumer lending sector, they are likely to be asked for a 2-NDFL income statement and employment record. But in any case, the scope of consumer loans is characterized by its speed – all decisions (positive and negative) are made here within 3 banking days.
- As part of such lending should not count on too large amounts. The upper credit threshold varies from 1.5 million rubles to 2 million rubles, depending on which bank the customer is dealing with.
- The consequence of the speed and relative availability of consumer credit are high interest rates (banks in this way tend to minimize potential costs). The interest rate in this credit field is almost never below 20%, and the usual – 25%. If the borrower seems financially unreliable, asks for the maximum possible amount or is unable to provide a 2-NDFL certificate at the request of the bank, then all this can raise the interest rate to a very high level.
- The lending period here is no longer than 10 years, which is often too short to complete the construction of a private house.
- But there are a lot of customers who are attracted by another feature – the untargeted factor. That is, the bank does not care where and how the client spends the money received in debt. This gives the borrower a maximum degree of freedom, when funds can be spent on some urgent expenses associated with the construction not directly, but indirectly.
It can be summed up that if a consumer loan is suitable for building your own house, then this house should either be very small or be already half built (previous owners often try to sell such houses on the cheap). Another thing is when a client has something to offer as additional collateral for a loan.
Mortgage secured property
A mortgage loan with an additional pledge agreement for the bank is the best option, because the bank receives an additional guarantee of the return of its financial assets. In most cases real estate is used as collateral. And of any kind – residential or non-residential (industrial).
Most often, borrowers pledge their city apartments, but it happens that land plots, warehouses, and retail space are used as well. Of movable property banks see cars as collateral, but even that is far from all brands and years of manufacture.
The machine should be as new as possible, without flaws, with all relying technical and legal documentation. Banks prefer foreign brands. However, this mortgage option has disadvantages:
- The most obvious – not all have mortgaged property. True, the categories of citizens whose funds are seriously limited, and do not claim to purchase their own separate home. Usually they borrow money to buy an ordinary city apartment.
- The size of the loan issued is limited by the market value of the collateral. The bank will not give out more than 85% of the market price of the collateral. The point here is not only the possible price drop over time (this is especially true for cars), but also that if the bank seizes the pledged property, this property should be sold as quickly as possible. What is possible only with a reduced price. That is why the car of the average Russian car owner is only suitable as financial assistance in construction, but it will not pay back all the construction (unless you need a very expensive car).
- The timing of such lending is already serious – up to 30 years.
- Compared with consumer loans, annual interest rates are 2-4% lower.
- The process of registration of the mortgage will be very costly for the client. As the bank will request an evaluation report on the collateral, plus compulsory insurance of this property. The borrower will have to implement all these legal procedures at his own expense.
- As a result, obtaining a mortgage can last for weeks or even months.
- And of course, one should not forget that if due to unforeseen circumstances the client fails to pay the monthly installments, the bank seizes the pledged property.
Mortgage on a private house without collateral
Classical mortgage lending for housing construction without collateral is a fairly new product on the Russian credit market. And only large, weighty banks can offer it. However, after the outbreak of the crisis in 2014, even in well-known banks, the offers on such mortgages on private houses decreased.
Strictly speaking, there is a pledge here too. Only this is not a ready-made third-party property, but the construction itself and the land on which it is built. Borrowers will be interested to learn that a bank can break such a loan into parts. That is, a certain amount will be issued for each stage of construction, and for each amount, its annual interest will be calculated.
It may be more profitable for the client than to pay for a total interest rate for many years. Of course, as in the mortgage with a pledge, the money received here is strictly targeted. From other conditions it should be noted:
- Mortgage period – up to 30 years.
- The minimum interest rate is 17%.
- Land area for construction must be framed by the borrower.
- The size of the mortgage for the purchase of a private house with a land plot is determined by the market value of the land plot, as well as the level of the borrower’s permanent income. Here is a reference 2-NDFL and the data of the workbook will be very important.
Use of maternity capital funds
A young family can use the maternal capital. In early 2017, its maximum size reached 450 thousand rubles. This may just be enough to level the initial payment in such a large mortgage.
Matkapital is almost always used to pay down the down payment, if it is used in principle to improve the living conditions of the family. It is important to know that the certificate of receipt of matkapital is available to implement literally immediately, without waiting for the child to be 3 years old.
And do not forget that not every bank supports preferential mortgage lending programs. First of all, you always need to find out if there is a mortgage in the bank, taking into account the total capital. Here is a brief step by step guide:
- Any spouse, since the wife / husband is automatically considered a co-borrower, applies to the selected credit organization with a statement on the mortgage and a certificate of the parent capital.
- The bank will first check with the FIU (Pension Fund of Russia) how much money is left for the capital.
- The borrower will have to write a statement and submit the requested package of documents to the FIU, because it is the FIU that deals with the transfer of funds from the parent capital.
What does Good Banking offer to customers who want to build their own home?
If we talk about specific proposals, then first of all it is necessary to voice the conditions put forward by Good Banking. As by the number of clientele, it covers all other credit institutions. By 2017, Good Banking resumed its pre-crisis mortgage programs. Now the mortgage for the construction of a private house and its conditions, not counting the special moments, are as follows:
- interest rate varies from 12.5% to 14%;
- the minimum crediting period is 12 months, the maximum is 30 years;
- minimum down payment – 25%;
- a loan to build your own home in Good Banking starts with 300 thousand rubles;
- the minimum age of the borrower is 21 years, and the maximum (at the time of debt leveling) is 75 years;
- support of preferential programs for young families; the use of maternity funds is encouraged;
- Customers with a Good Banking salary card are more trusted and can expect lower annual interest rates and a larger loan size;
- currency – rubles only;
- the mortgage object under construction, as well as mortgaged property (and a pledge in Good Banking for such a mortgage will require 100%) will have to be insured;
- a strictly target factor, i.e. money received in debt is permissible to spend only on what is directly related to the process of building a house.
Advantages of Good Banking offers
Good Banking emphasizes that the mortgage offers it offers to customers who want to acquire their own home have many advantages:
- the absence of fines and fees for mortgage processing, early repayment and regular credit services;
- solid mortgage interest and annuity payments, although the latter are considered by many clients rather as a minus, because with differentiated payments, overpayment of interest is less;
- owners of salary plastics of Good Banking (individuals) and those whose enterprise is accredited in Good Banking (legal entities) can count on tangible concessions in terms of lending;
- the bank supports a wide range of preferential programs related mainly to the use of maternity capital, plus the bank tries to offer young families the lowest possible annual interest rates;
- if a construction company hired by a client is associated with Good Banking (accreditation, partnership, loan issuance), then such a client will also be given high bank confidence;
- Bank policy welcomes co-borrowers;
- Good Banking is included in the list of those banks whose loans with the Federal Tax Service are the easiest to issue a tax deduction on interest paid (13% of the total interest amount);
- Finally, each application is considered by employees of the bank not as a template, but individually.
Determination of interest rates in Good Banking
At Good Banking, loans of this kind are issued in two, sometimes in three installments. For example, the client receives half of the entire mortgage, and then provides the bank with checks and statement of expenses, proving that the finances really went to construction. Only after that the creditor bank issues the rest.
The big plus in Good Banking was the introduction of a three-year deferment of the repayment of the mortgage. Any client can use this service. When the first 3 years, the borrower pays only interest, without additional payments to offset the mortgage itself.
It happens, it helps a lot in case of unforeseen expenses that often arise during the construction process. There are general rules that lower annual interest rates – a large down payment and so on. More details:
- down payment from 50% – the interest rate varies from 12.5% to 13% (depends on the mortgage term);
- down payment up to 50% – rate from 12.75% to 13.25%;
- down payment up to 30% – rate from 13% to 13.5%;
- + 1% to the rate – for those who refused to insure life and health at the request of the beneficiary;
- + 1% to the rate – there is always, until the mortgage is registered, after it is removed;
- + 0.5% to the rate – for anyone who does not receive money on a Good Banking debit card.
The set of documents and the process of their transfer to the creditor in Good Banking are not distinguished by anything against the background of all other credit institutions. This article is written to help those who are going to take a loan to build their own house, but have not yet found their way around this topic.