Dugert is the basis of real estate financing in house construction – the borrower, so the user of the construction field, receives the construction field for the purpose of building a house from a lender (banks, savings banks, financial intermediaries, insurance) and hands this money to subcontractors who build his property.
Also, if colloquially the term construction money is often used synonymous with real estate financing, it is legally well defined. Dugert is always earmarked, so it must be used for the construction or purchase of a property or for conversion work, and it is mandatory in the construction loan financing subcontractors involved – so for example, construction companies that take over the construction of real estate.
The borrower pays out these subcontractors from the funds of the construction field and in return receives a turnkey construction or a refurbished house. The construction field comprises both the borrower’s equity and the lender’s third-party funding, ie the actual loan amount.
Framework conditions and contractual
Builders are on the one hand the house banks, on the other hand also other branch and direct banks or savings banks. Also building societies or financial brokers grant construction money.
Construction money is usually granted in the form of an annuity loan, so the installments remain the same in their monthly amount. The duration of the financing corresponds to the period for the fixed interest. Since the term is usually set shorter than is actually required for the repayment of the loan, then a follow-up financing. This can be done by the same lender, but can also be concluded with another bank.
However, such a change is associated with costs. Because a building loan is always secured by a mortgage – the lender receives a mortgage debt (see mortgage) on the property to buy or build. If follow-up financing is to be carried out at another bank on more favorable terms, the mortgage must be transferred to the new building donor. Due to the long maturities of construction loan financing, however, the switch to a cheaper provider can be expected despite the cost of the transfer.
Construction money in the form of a term loan (the entire loan amount is due at the end of the term) is rather uncommon, but may be useful if a home savings contract is saved in parallel, whose maturity coincides with the end of the term, or if after a certain time a large cash receipt (for example, from an inheritance) is expected.
Securing the construction money financing through this land charge makes the construction money for banks, savings banks and other lenders to a low-risk business. Since the property is usually estimated very conservatively in the basis of calculation, even if the borrower fails to pay and the property is foreclosed, this does not result in the total loss of the credit claim. This high level of security pays off for the contractor in that the annual percentage rate for construction money is very low.
Often a separate account is set up for the construction field. The lender pays the loan amount to this building account, and all the construction companies as well as the notary fees and other expenses are then settled by this. While some groups of people, such as the self-employed, find it difficult to obtain construction money (since no fixed income is guaranteed during the term, credit institutions often require additional collateral or a higher equity ratio), there are other benefits. Large families receive construction money very cheaply. Especially for such family loans contracts should be created, which not only allow free special repayments, but also flexible adjustments of the repayment rate.
Construction money without mortgage
An exception to this basic rule “mortgage against mortgage” applies to financing modernization measures. If, for example, you want to refurbish your property energetically, or if you want to convert it for handicapped people, you can call up the construction money in the form of a modernization loan.
Also this construction field is assigned earmarked. There is no insurance covering the registration of a mortgage, the conditions are very favorable. The intended use of the construction field must be proven, for example by submitting invoices from subcontractors about their services provided.
Amount of required construction money
Even if interest rates on loans are currently historically low, solid building loan financing should never be one hundred percent debt. An equity ratio of at least twenty percent is recommended. Although this also includes own work (jokingly also called “muscle mortgage”) – these are often much too high estimated.
A realistic appraisal of the actually possible in-house services is just as important as the consideration that deficient in-house services under certain circumstances endanger the warranty claim against the subcontractors.
In the planning of the total amount not only the incidental costs incurred anyway (such as notary fees or real estate transfer tax) must be taken into account to a not inconsiderable amount. Sound financing should also include a small cushion for unpredictable or difficult to calculate special costs. For example, this may be development costs imposed by the community.
Beware of tripping hazards
The borrower transfers the construction money to third parties. As a rule, he has to deal with a construction company as a general contractor, which in turn employs other companies as subcontractors. All these contractual partners receive their share of the construction money (from the bank via the borrower and the general contractor).
The contingent liabilities of the general contractor face-to-face the other contractual partners are governed by the Bauforderungssicherungsgesetz, the Dupert. The general contractor may only use the construction money paid to him for this specific construction measure. Mixing of construction sites on several construction sites is not permitted.
Important for the client is the liability of the general contractor towards him. The quality of the chosen construction company is crucial – a work not completed in time or poorly executed work will not release the borrower from the obligation to repay the building money to the lender. So it can happen that the client still has to deal with building defects even after moving into the house.
Although the bank will continue to expect its monthly payments on time; However, the construction company may have a right of retention. Even after the home purchase complaints are still possible at any time, if the defects were not apparent before. The construction company then has a Nacherfüllungspflicht. The client has the right to withhold a sum in threefold amount of the additional work to be done until the defect is remedied.
Another problem may arise from delays in construction. Many contracts provide for credit institutions to charge additional interest if they have provided the construction money after the contract was concluded, but this is not called. If then the start of construction is delayed, that can quickly become expensive. Where possible, therefore, the construction loan agreement should include a clause excluding such additional interest over a given period.
Further criteria in terms of construction money
In addition to these important factors, the borrower at Dugert must follow the same criteria as other real estate loans:
- Selection of a reputable lender
- Rate of income and duration tailored to disposable income
- low effective interest rate
- thorough comparison of offers
- Possibility of free special repayments
- sufficient equity share plus upholstery