Building a house is something that costs a lot of money, which means that most people need to borrow money to carry out this project. But since a home loan has a home as collateral, it is impossible here to take such a loan since there is simply no home that can stand as collateral. For this reason, there is something called building credit. This can, for example, also be called a building loan.
A building credit is a loan that runs during the actual construction of the home. Money is paid out on an ongoing basis in order to pay the various parts of the construction such as foundation, plot, etc. If the total prices for the home are lower than what you have taken out a building credit for, you do not have to pay any extra interest. This is when a building credit unlike other loans is not paid out at once, but you only borrow the money that is actually used. Then, of course, there is a maximum limit that says how much you can borrow for your building.
What does it take to get a loan?
As with all other loans, you must have an income that can cover the costs of the loan. This is an obvious basic requirement. What distinguishes a building credit is that you also have to show things like drawings, budgeted costs and who should build the housing etc. for the lender. They will, with the help of this information, partly decide whether it is worth building the housing or not and then if your finances are good enough for them to want to lend the money.
If you have received a building credit and then built a home, this must be inspected and insured when the construction is completed. After that, you take out a mortgage on the home and then you convert the building credit into a mortgage. It is only when the housing is completed that it is possible for it to stand as collateral for a mortgage. Converting a building credit to a mortgage is a positive for you as a borrower when the interest rate will go down.
Who offers building credit?
If you only have a good economy, it should be no problem to find a lender that offers you to borrow money in the form of a building credit. This is because all the major banks in the country offer their customers this, for example. A good thing to keep in mind is that you are in a fairly good negotiating position if you intend to take a building credit and then a mortgage from a certain lender. This will mean a lot of revenue for them for many years to come, which makes them very interested in having you as a customer.