Alternative financing for house purchase

You may want to look towards alternative financing if your bank is unable to lend you money to buy a house or other real estate. There are several alternatives to financing a house purchase with a bank loan or mortgage.

In this post, we will review some of the options available on the market. We will provide an overview of the advantages and disadvantages of buying a house with alternative financing and give some advice for those considering alternative financing.

What is alternative finance?

Alternative financing means that you finance the purchase of a home outside banks or mortgage lenders, which are the traditional loan providers. It may be relevant to finance your home purchase with alternative sources of finance if you cannot be approved for a loan from a bank.

‍Readalso: Bridge financing

It is important to have your home valued before you start renovating or building a new home. This is because the potential increase in value provides the bank or mortgage credit institution with a basis for their credit rating of you and thus how much you can borrow for your construction project.

Building loans

A construction loan - also called a building credit - has the advantage that you only pay interest on the part of the credit that you use on an ongoing basis to pay for the costs of the construction or renovation. However, there are also disadvantages, as the building loan has a higher interest rate than an advance loan and it is harder to predict how much you will have to pay off the loan as the interest rate is variable.

The building loan can be used for renovating your house, rebuilding, or buying land and financing new construction. When the building is completed, the construction loan must be repaid, which is usually done by taking out a mortgage.

Prepayment loans

Unlike a construction loan, where you use up the credit as bills are paid, an advance loan is a loan for the full amount you expect to spend on construction, which you take out before construction starts.

The interest rate is lower than a construction loan and fixed rather than variable, so you know how much the loan for your new house will cost. However, you will pay interest on the loan from the start of construction, unlike a construction loan, on which you only pay interest when you draw down the credit. As the advance loan is a predetermined loan, you will have to finance extra costs yourself or take out a new loan if unforeseen costs arise during construction.

How do I take out a construction loan?

If you want to renovate or rebuild your house, you must first contact the bank, which will carry out a credit check on you. This will tell you what budget is realistic for your renovation. Before you can get an advance loan or a construction loan, you will also need a pre-assessment of your home. This is done by an estate agent, who assesses the value of the home now and the expected value after the renovation or conversion is complete.

If you take out a construction loan, you will get a credit line from the bank that you can use to pay the construction costs on an ongoing basis. When the construction is finished, you will receive a statement of your construction loan. You can then take out a mortgage to pay off the construction loan at the bank.

Although the construction loan offers more flexibility and you pay interest for a shorter period than with an advance loan, there are also disadvantages. You pay double the fees when you take out and register the construction loan at the start of construction and when you take out and register the mortgage to pay off the construction loan. There is also a risk that, after the conversion, your house will have fallen in value and the amount you have to pay back will exceed the increase in the value of your home.

It requires a specific assessment to determine whether your construction or renovation is best financed by a construction loan, a mortgage or a combination of these. It depends on your own savings, the expected time it will take to complete the house and a number of other factors that housing advisers can advise you on.

Take out construction loans through crowdlending

Fundbricks enables property developers to finance construction projects through crowdlending. To get your building project funded through crowdlending, you first need to go through our screening process, which includes:

You can read more about the requirements here.

If you are interested in seeing some of the construction projects that have been made possible through Fundbrick's crowdlending service, you can explore our portfolio of completed projects here.

See also the many completed construction projects that have been made possible through Fundbrick's crowdlending.

Full funding for solid Danish real estate projects

Together with our partners, we can in most cases provide full financing for solid Danish real estate projects. This includes both senior and junior financing - and all without any requirement for personal liability.

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