Housing construction credit is a type of financing aimed at those who want to build their own home, instead of buying a ready-made property.
Until recently, most banks only granted this type of credit to those who had already acquired a viable plot of land for construction. However, currently, there are already several banks that facilitate this process, by offering credit not only for the acquisition of land, but also credit for construction.
What is Mortgage Loan?
Housing construction credit is financing offered by financial institutions for the construction of residential properties. It allows the borrower to obtain the necessary funds (released in tranches) for all phases of the work, from the acquisition of the land (in some cases) to the completion of the construction.
You can also benefit from a grace period of 24 to 36 months, during which time you will only pay interest on the amount already made available.
Difference Between Traditional Home Credit and Construction Credit
Traditional home loans are intended for the purchase of ready-made properties (new or used). The financed amount is released at once for the seller's payment.
The construction credit is intended for the construction of a property from scratch. The amount financed is released in installments as the work progresses, which allows greater control over the use of resources.
In construction credit, the collateral is given through the land and everything that is built on it. Unlike what happens in home loans, in which the collateral is the financed property itself.
How this financing typically works
Financing for housing construction typically follows the following steps:
a. Credit Analysis: Assessment of the applicant's financial capacity and documentation.
b. Project Approval: The construction project must be approved by the local authorities and submitted to the financial institution.
c. Release of Installments: The amount financed is released in installments, according to the progress of the work and the inspections carried out by the bank.
d. Inspections: The bank conducts periodic inspections to check the progress of the construction before releasing each installment of the financing.
What Does It Take? Is it necessary to have land and an approved project?
To approve the credit, your customer profile will be evaluated, as well as the land and the design of the house (if any). It is essential that the land is viable for construction and, if there is a project approved by the City Council, the approval of the credit will be easier.
Construction credit approval is usually slower due to the bureaucracy involved. While it is possible to apply for the loan without an approved project, it is recommended to get the land approved by the City Council first.
To speed up the process, you can opt for a plot of land that already has prior approval, even if it means using a project designed by a third party. This choice can significantly reduce the time it takes to start construction.
Construction projects have associated costs. If you do not have sufficient financial resources and need credit to move forward, it is crucial to calculate all the costs involved and prioritize permits and project execution before making any new financial commitments.
What If You Don't Have Capital for the Land?
If you do not have the capital to purchase the land, some financial institutions offer the possibility of financing both the purchase of the land and the construction of the property. In these cases, it is necessary to prove the financial feasibility to support both acquisitions.
Advantages of Construction Credit
Flexibility: Possibility to build the house according to your preferences and needs.
Cost Control: Financing released in installments, allowing for stricter control over spending.
Appreciation: The built property can appreciate significantly, increasing the value of the initial investment.
Disadvantages of Construction Credit
Complexity: This is a more complex and bureaucratic process compared to traditional mortgages.
Risks of Delays: Possibility of delays in the work, which can impact the schedule and costs.
Additional Costs: Need to bear the costs of inspections and eventual adjustments to the project during construction.
Site Inspections
Inspections are mandatory for the release of the financing installments . These inspections are carried out by professionals appointed by the bank and aim to verify the progress of the work in relation to the schedule presented. The cost of inspections can vary depending on the financial institution and the location of the property, but it is usually a fixed fee or a percentage of the amount financed.
Final Thoughts
Mortgages can be an excellent solution for those looking to build their dream home, offering flexibility and control over the project. However, it is essential to be aware of the requirements and challenges involved to ensure that the process runs smoothly and without any unpleasant surprises.