Building loan and land loan: disbursement of the capital with progress or in a single solution?

Building loan and land loan: disbursement of the capital with progress or in a single solution?

The building loan and the land loan are two different financing solutions for buying a house under construction or already completed. The two mortgages differ in the method of disbursement of the capital: based on the progress of the work or in a single solution.

The building loan and the land loan are two financing solutions for buying the first home but they differ in the method of disbursement of the capital. Furthermore, the two types of mortgage can be requested differently based on the type of home to be purchased: a house under construction or to be built and a house already finished.

The land loan and the building loan can be requested for the payment of a single real estate unit or even on condominiums with several apartments: the financed capital is always disbursed according to the methods described above.

The building loan and the land loan: MAIN NOTIONS

The building loan is the mortgage solution that can be requested in the event that the house is to be built from scratch or is under construction: the capital granted during the signing of the loan is disbursed based on the progress of construction of the works. The capital is paid to the applicant directly on his current account but the sums are bound to the carrying out of the interventions on the house and only after these the sums are released can be used for payments.

The land loan is the mortgage solution for the purchase of the first home already completed and concluded on which no interventions must be carried out: the financed capital is paid entirely into the current account of the beneficiary of the loan, in a single solution, and is used to pay for the home purchased without any restrictions on the part of the bank. In this case, the financing and use of the sum of the disbursed capital are much more flexible than the building loan even if both mortgage solutions are designed to avoid the change in the destination of the money (pay off other debts, etc.)

The building loan and the land loan: PROVISION OF CAPITAL AND MORTGAGE

The following table highlights the main characteristics of the land loan and the building loan, the method of disbursement of the financed capital, and the requirements of the home based on the type of loan. The table also shows the necessary condition of the mortgage that for the land loan is signed on the property, as it exists at the time of purchase, while in the building loan the property unit is under construction or non-existent for which it is necessary to take out the mortgage on the land on which the house will be built

The mortgage loan: FUNDING REQUIREMENTS

With both types of mortgage, during the phase of signing the loan agreement, whether the home to be borrowed is under construction or already built, the applicant for the loan must take out a mortgage on the property which constitutes the guarantee for the loan. lender of the loan for the recovery of the financed capital. The mortgage loan is based on the criteria called land requirements by which we mean the necessary conditions for obtaining the loan and disbursement of the capital:

  • registration of the first-degree mortgage on the property to be borrowed;
  • duration of the contract over 18 months;
  • coverage of the financed capital up to 80% of the real estate value;
  • coverage of the financed capital up to 100% of the real estate value in the event of additional guarantees and the presence of a guarantor or guarantor.

The mortgage loan: ADVANTAGES

The subject requesting a land loan for the purchase of a house already completed has advantages that favor the conditions for repaying the loan and limit situations of economic difficulty. The borrower with the land loan solution can:

  • request the reduction of the mortgage sum registered in relation to the reduction of the residual capital to be repaid;
  • request the accounting and mortgage splitting in proportion to the amount established by their unit;
  • pay the consideration of half of the amount due to the notary’s fee for the deed of underwriting the loan;
  • possibility of partial or total extinction of the loan;
  • extension of the timeframe for legal action in the event of insolvency or non-payment of two or more mortgage installments.

The building loan: CHARACTERISTICS

The building loan contract is the financing solution for the construction of a house and very often consists of the disbursement of high capitals that are disbursed in relation to the progress of the state of construction of the property, subject to technical expertise whenever there is a new disbursement of the tied sums by the bank that granted the loan.

The building loan, similar to the land loan, is guaranteed in cases of insolvency by taking out a mortgage on the land on which the house will be built. As previously mentioned, the disbursed capital granted with the loan is released by the bank in tranches based on the progress of the construction works, and in general, the released sums are increasing: at the beginning, there will be smaller amounts going to advance according to the development of the building.

The building loan on several homes: THE MORTGAGE FRACTION

It is important to underline that in the construction phase of several houses it is not possible to identify the loan share of each property: the person who wishes to carry out a deed on a specific property is obliged to respond to the capital provider an amount in proportion. Only at the conclusion of the construction works of the entire building and following the sale of the real estate units, does the bank itself request the signing of a splitting loan which establishes the overall amount of the loan.

Following the sale of almost all the real estate units and the identification of the mortgage share based on the type of home, within the coverage limit of 80% of the property value, some residential units may also be excluded from the subscription of the mortgage, or released from the mortgage. The split loan, therefore, corresponds to a large loan that includes the amounts of all the real estate units and which is divided between several borrowers who take on the share of the loan by registering the debt under their own name: the loan becomes individual.

The building loan: IF 80% COVERAGE IS NOT ENOUGH

In signing a building loan, the capital financed by the credit agency covers up to 80% of the equivalent value of the property for which it is impossible to have a loan equal to the total sum of the property: to purchase the property it is necessary to have a share of liquidity covering the residual cost of the housing unit to be borrowed. If you do not have the necessary liquidity, the only purchase option is to request a second mortgage even if it could become particularly burdensome on your economic situation.

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By Michael Caine

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