Banks finance individual projects and grant a home construction credit when the project is carried out under the aegis of a CCMI (contract for the construction of a detached house). Apart from this, the rules are the same as for any real estate loan: the future debt ratio should not exceed one third of revenues, and repayments are generally fixed rate.
Which builder get a construction credit
Banks prefer to finance houses built via a CCMI. This type of contract is governed by strict regulations. The builder must have a completion guarantee, which assures the lender that the house will actually be completed, and the signatory contractor of the CCMI is an architect or a promoter, holding a civil liability insurance and a damage guarantee ten years old.
The bank therefore grants a construction loan for both the land and the building, and offers several options to adapt to the client’s repayment capacity.
The three formulas of construction credit
The borrower can choose between three home construction loan formulas, depending on his repayment capacity. First case: if his resources allow him to support both the rent of his current home (or the interest of his current home loan) and the interest of the construction loan, the bank releases the line of credit at one time. The borrower begins to amortize as soon as the first monthly payments.
If its resources do not allow it to support these new monthly payments in addition to its current charges, the bank offers a grace period: at each call for funds from the manufacturer, it releases the amount requested and notifies the borrower. Calls for funds are specified in the CCMI and cannot be derogated from.
At each unblocked amount, the borrower pays what is called a monthly interim interest, intended to compensate the bank for the sums placed at its disposal pending completion of the work. The building code imposes a holdback of 5% of the price of the project until the buyer has accepted the delivery; once the house is accepted and declared free, the bank releases the remaining 5%. From that moment, the landlord will pay monthly installments, and begin to write off his home construction loan.
The third option is to grant a full deferral of interim interest, in addition to the deferral of monthly payments. This solution is only used if the repayment capacity of the borrower is not sufficient.
Obtain a construction loan for a house
The construction credit for a home will only be granted if the homeowner’s future debt ratio does not exceed 33% of his net taxable income.
The duration of the repayments is adjusted to obtain the ideal scenario, so as not to place the borrower in a difficult financial position. Banks offer three rate families: variable, fixed or mixed.
In France, most of the fixed-rate construction loans are used, which allows the borrower to evaluate his budget over a long period. As repayments progress, so does their purchasing power, as their incomes rise while the monthly installments of their home construction loan remain the same.