Construction of a single-family house: should the credit cover all the work?

single-family house

Contact a builder to build his house, request a project owner who will do everything or build his own residence by being assisted by this or that craftsman (plumbing, electricity, masonry…), several solutions are available to households wishing to embark on a house construction project.

For financing, the classic solution is the bank loan. This is a real estate loan purchased from a banking institution. Its monthly payments are based on the subscriber’s debt ratio (the 33% income rule is often respected), but its amount depends on several financial possibilities such as personal contribution, the share of loans supported, repayment period. You can find more info here.

However, whatever the solution chosen for your construction project and whatever the financial possibilities (personal contribution, zero-rate loan, housing share loan, etc.), the total amount of the real estate loan must imperatively cover all the work (from foundations to the laying of tiles) at the time of the loan agreement.

To do this, banks require several supporting documents such as the individual house construction contract if the project manager opts for a builder (company or craftsman), detailed estimates of all stages of the operation if the project manager decides to build his house himself or if he requests a project owner.

Can other fees come after obtaining the real estate loan?

Every year thousands of people have their dream homes built through developers, builders or specialized craftsmen. The steps to follow are almost the same for everyone: purchase of constructive land, realization of the plan, obtaining building permits, obtaining funding, starting work and finally handing over the keys.

To do this, a forecast financing plan is put in place. However, despite the subscription of various guarantees and insurance (harm insurance, price guarantee and delivery times…), it sometimes happens that the total cost of the operation is higher than the total amount of the real estate loan obtained to finance the construction.

In other words, unforeseen events such as: the modification of a plan or building permit, the addition of options (specific tiles, modern carpentry, high-end sanitary, exterior development design…) can increase the total cost of the project.

The financing of this additional work can cause a lack of funds to complete all the work. The initial loan may also be insufficient for those who get into debt to buy an unfinished property (house or apartment) or to finish themselves by playing the handyman (plumbing, electricity, connection…).

House construction: what solution if the initial loan is insufficient?

Namely, it is extremely difficult, if not impossible, to make an amendment to a credit offer to obtain additional funds, especially as part of a house construction project where the release is gradual and according to the progress of the site. In the event of a lack of funds to complete certain unforeseen work, the site may be stopped, even if all funds are not released.

To avoid this catastrophic situation (more info), the future owner can use work loans, consumer loans or money reserves. This practice can be particularly dangerous since it can increase the debt rate of the project manager and impact its financial balance.

In addition, the future owner can use the grouping of loans if he has other outstanding loans. To do this, he can abandon the balance for unrealised funds and use the consolidation of all his outstanding loans. As part of this banking operation, he can request the financing of new projects in order to repay in advance the funds already released and to complete the construction. With this loan consolidation operation, the project manager can combine all his loans into one or obtain a monthly payment adapted to his actual repayment capacities.

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