Is Construction Credit a Normal Housing Credit?
Typically, in a mortgage loan, the property is given as collateral for the bank to allocate financing. However, in the construction loan, things are slightly different. If there is no property to function as a guarantee, it is attributed through the land where the dwelling is to be built and everything that is built there.
In short, you can expect some kind of land financing plus construction. That is, the credit granted takes into account the acquisition of the land (also having credits for the purchase of land) and the construction of housing.
On the other hand, making an analysis based on the history of housing credit in Portugal, it is concluded that usually the interest rate implicit in housing credit is lower in these credits for construction when compared to the common credit to buy house. However, it is best to always look to see which banks offer the lowest spread .
Also note that credit construction housing is always released in tranches. That is, unlike normal housing credit, which is released all at once, this is granted in installments (usually in a first part, enough to start the work).
What documentation do I need to have to access these loans for home construction?
Usually there are a number of documents that are borrowed whenever you make a home loan, which you can find in the following list:
- Identification documents of credit holders housing;
- The last three paychecks for dependent workers or receipts from the last six months for individuals who are self-employed;
- Declaration by the employer;
- Last IRS statement and settlement note;
- Map of Credit Responsibilities of Banco de Portugal;
- Land Registry and Land Registration Certificate;
- Bank statement of the last three months;
- Proof of IBAN and address.
However, in the specific case of this construction loan, it is also required that the document issued by the City Council be presented stating that the license is ready.
Should you choose a fixed or variable rate on construction credit?
In housing credit there are two options regarding the interest rate to be hired. At the fixed rate, as the name implies, when asking for a loan to build a property, you pay an agreed fee between the client and the bank. This is unchanged during the period agreed in contract.
In the variable rate, there is a component indexed to the EURIBOR, which changes according to the term chosen (depending on whether it is indexed to the EURIBOR at 1, 6 or 12 months, for example). The most common in credit for construction, as it is in the other housing credit modalities, is to contract a variable rate with the 6-month EURIBOR as a reference.
However, the option should always be made with the market in question. For example, any credit application for construction must have prior attention to the status of the EURIBOR. If it has a downward trend, the safest is to opt for the variable rate. But if this index is expected to increase, then it will be more advantageous to opt for the fixed rate when applying for a construction loan.
What factors should be considered when resorting to a construction simulator?
When looking for the best credit for construction, there are a number of factors that you can not overlook and which are quite important when deciding on the best loan for building the property. Are they:
- APR : called the Annual Effective Annual Rate (APR), which includes all costs of the loan. This includes interest, commissions, procedural expenses and insurance costs associated with the loan.
- MTIC : is the Total Amount Imputed to the Consumer. This value, given by the bank, represents the total amount that will pay along the credit for construction.
- Spread : The spread is the bank’s profit margin when allocating a loan. The spread , despite being advertised by banks as the main comparison term among them, is in fact a comparative factor of minor importance. In order to assess the true costs in a construction credit, one must always look at the APR, since this is more complete in the factors that it encompasses.
- Monthly Installment: When comparing in ComparaJa.pt and accessing our results table, you will be able to know approximately how much you will pay per month in the requested construction credit. It is, of course, only an estimate and the actual amount payable may be different.