Financing an addition: Things to know about financing additions for property owners!

Expanding living space with an addition can significantly increase the value of a property. Provided that the realization is carried out under high quality standards. To ensure this happens, don't underestimate the investment amount.

Building materials, handymen and personal contributions can eat up a lot of money. With solid financing, the project can be successfully implemented. Tips on how to do this are the subject of this guide.

Choose loan type wisely

Depending on the home addition, the total cost may well be less than 50.000 Euro lie. What's basically good for the household budget can prove costly when it comes to finance. The reason: smaller loan amounts usually require banks to do the identical administrative work as large construction loans, which is why interest rates on mini-loans can unfortunately prove comparatively high.

In addition, when taking out a construction loan, homeowners must calculate the financial cost of the land charge. To avoid unnecessary expenses, it is worthwhile to take out a relatively unbureaucratic installment loan. No entry in the land register is necessary here, which eliminates land registry and notary fees, and the process is much less complicated overall.

While interest rates can be higher than construction loans, the borrower benefits from more flexibility and can also pay off the loan early without having to pay an expensive prepayment penalty to the lender, which is common with many construction loans.

For extensions, it may also be worth asking for individually designed renovation or modernization loans. These are granted to real estate owners, are earmarked and often characterized by attractive interest rates. Additions between 5.000 and 50.000 euros can be financed with it, a land register entry is not necessary.

Complementary to traditional bank loans, there is the possibility of obtaining the desired amount from private lenders via virtual marketplaces. This is possible through intermediary platforms that bring together private borrowers and lenders. A fee is charged for the mediating activity.

At the online marketplace auxmoney, which brokers private loans, consumers can, for example, conclude an instant loan, which can be processed entirely via the Internet through video chat identification and digital signature. The time span between loan conclusion and disbursement is comparatively short because of the accelerated communication.

Such a loan can be particularly useful to self-employed people and freelancers, a group of people who often have problems obtaining loans from house banks due to increased risk. However, it is also worth comparing several sources of credit in general to find the most favorable offer in each individual case.

Money for the house

Tips on how to do it wisely

Generally, financing additions is easy to do for the most part, as banks like to see and encourage the associated increase in property value.

The question for most financing is therefore not whether it is possible, but rather which type of loan would be ideal. To find out, the following procedure is advisable:

  • Draw up a cost plan: Before considering banks and other financing options, prepare as detailed a cost plan as possible for the construction project. This is done with architect, construction managers and tradespeople.
  • Make an inquiry: Based on the cost plan, the first step is to request construction financing from the local bank. It can be low-interest, depending on the cultivation and investment. However, the home bank may deny the request for several reasons. One of them is debt. If the building is not at least 80 percent debt-free, it would be unlikely that further construction financing would be accepted. An installment loan is then the better choice. For this purpose, offers can be obtained from various banks and online marketplaces.
  • Compare: A comparison is always advisable. Comparison portals take over the sometimes tedious research work and compare offers from well-known credit institutions free of charge and without obligation.

Take advantage of government subsidies

Earmarked modernization loans are subsidized by the KfW (Reconstruction Loan Corporation). Among them, for example, measures for energy modernization. Whether it is worthwhile to meet the requirements for approval of state funds in an addition must be examined and calculated through on an individual basis.

Without detailed advice from an expert it does not work, because the topic is enormously extensive and makes expert knowledge indispensable. Initial information on the various subsidy products can be found in the digital brochure "KfW subsidies for your home: benefit now from favorable interest rates and subsidies".