Construction financing for the self-employed – this is how it works!

Yes, even the self-employed get a real estate loan. While the self-employed, freelancers and tradesmen are not among the preferred clientele when it comes to construction financing loans due to their fluctuating income situation. Nevertheless, construction financing is just as feasible for the self-employed as for employees or civil servants.

Why self-employed people find it harder to get construction financing?

Construction financing often involves large sums of money. In most cases, the financing requirement is at least 100.000 €. With amounts like this, banks expect collateral on the part of the applicant and look extra closely at self-employed people. Because their income is more irregular than that of employees or civil servants. This makes it much more difficult for banks to assess whether the applicant will be able to repay the loan for the purchase or construction of a property in the future.

In addition, both sides have to make a greater effort to present their financial situation: In the case of salaried employees, salary statements for the last six months are sufficient. Self-employed persons, on the other hand, must submit comprehensive balance sheets for the past three years. Many banks shy away from this examination effort, which involves a construction financing for self-employed persons. For these reasons, it is more often rejected from the outset compared to construction financing for employees.

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What are the differences in construction financing between self-employed and salaried employees??

Due to the differences in income, self-employed people are therefore dealt with somewhat differently than employees when it comes to construction financing. This applies not only to the application effort, but also to the conditions that self-employed persons and freelancers have to reckon with. In addition, self-employed people are not always the same as self-employed people for banks. Between individual industries make financial institutions differences and so have it self-employed workers from some industries easier to get a construction financing than others.

Self-employed receive different conditions

Probably the biggest difference is that construction financing for the self-employed is not available at the same good conditions as construction financing for salaried employees. With higher interest rates, the banks compensate for the increased risk of the entire financing.

Another difference: While salaried employees could also finance the construction project on their own, banks often insist on a second borrower, such as a partner, in order to spread the risk over several shoulders.

Doctors preferred, craftsmen disadvantaged

Anyone who is not employed is self-employed. For the banks, however, the decisive factor is whether the applicant is a freelancer or a businessman. Freelancers – for example, doctors, architects or lawyers – are usually classified as employees and receive loans at similar conditions.

It is more difficult for professionals, such as craftsmen or traders. In many cases, they have to live with lower interest rates. Banks take a particularly critical view of self-employed people in the construction industry. According to statistical data, this sector has the highest number of insolvencies. Due to the volatile nature of the construction industry, the risk for banks is high that self-employed persons from this industry will not be able to service their loans on a permanent basis.

Pupils, students, people doing community service, seasonal workers or start-ups have the least prospects – here the bank will only consider the financing request if another applicant supports the project and has the corresponding creditworthiness. Over this small detour the construction financing for independent ones can be realized then usually nevertheless still.

What types of loans are available for the self-employed??

There are several different types of construction loans. Which one is right for you depends above all on what exactly you intend to do. A detailed overview of all types of financing can be found in the linked article. We would like to present you, as a self-employed person, loans that are particularly suitable for you.

Annuity loan

In principle, the same type of loan is available for the self-employed as for salaried employees: the annuity loan. It is characterized by a monthly installment that is always the same and the possibility of fixing the current construction interest rates over the debit interest commitment for a very long period of time. The predictability of its course makes the annuity loan a good construction financing for self-employed people.

Especially because the income situation can change quickly, the most flexible construction financing possible is especially important for the self-employed. If you opt for an annuity loan, make sure that it allows for free repayment rate changes. The monthly installment can then be reduced to give you more financial leeway. In case of emergency, the banks often even agree to suspend repayment altogether for a certain period of time.

Flexibility is also crucial if the self-employed person suddenly earns more and wants to put the money into construction financing: for such cases, the loan agreement should allow for free unscheduled repayments. The positive effect of this is that as soon as special payments are made, the residual debt, loan term and interest costs of the construction financing decrease.

If the flexible options in the annuity loan are enough for you, other loan forms can help out: For example, if you expect higher profits in the coming years, it may make sense to set a shorter debit interest commitment and rely on a variable loan. This gives you the opportunity to invest the surplus money directly in construction financing without limit and without extra costs. With an annuity loan, this is only possible to a limited extent.

KfW loan

KfW loans are offered by the Kreditanstalt fur Wiederaufbau (KfW) and are also well suited as construction financing for the self-employed. With its low-interest loans and one-time grants, the state development bank helps private homebuyers purchase a home. A KfW loan is not usually used to finance the entire property, but rather serves as a supplement to normal construction financing.

The big plus point of a KfW loan is that the interest rates are usually more favorable than for conventional construction financing. The one-time subsidies, which do not have to be repaid, also save you money. KfW funding is eligible for both salaried and self-employed individuals as an add-on to construction financing. The same conditions apply to all – both in the decision to grant the loan and in the terms and conditions.

Building savings contract

A building savings contract and the associated building savings loan can also be used for construction financing for self-employed persons. However, this financing option requires a certain amount of lead time, as you must first pay a certain set amount into the home loan before you can take out the associated loan. Normally, a building savings contract is initially saved for seven or eight years. In this time you save around 40 % of the agreed building savings sum as equity capital. You will receive the remaining 60% of the building savings amount as a loan after the savings period. This you pay back then like a normal loan in installments.

The advantage of a building savings contract as construction financing for the self-employed is that no distinction is made between employees or freelancers. All bauspar customers receive the same conditions in terms of term or interest rate. The activity relationship is only scrutinized more closely when the loan is ready for allocation after the accumulation phase. Then the creditworthiness of the borrower is checked, because a building society also wants to be sure that it will get its money back. Self-employed and freelancers must submit the last three annual financial statements, a current BWA and the last available income tax assessment for this check. Based on this data, the average income is then calculated, which in turn is treated like the income of an employee.

If the self-employed person is denied the loan – for whatever reason – he is still entitled to the amount he paid into the contract, plus interest. The deposited money is therefore not lost and can still be used as equity for construction financing in case of need.

A disadvantage of a building savings contract as construction financing for the self-employed is that you must be able to operate it – that is, pay a sum into the contract every month. This is, of course, an additional cost factor that the self-employed and freelancers should factor in. In addition, you can not determine the exact moment when you will receive the loan. Only a certain number of home loans are made within an allocation period. If the pot is empty for one period, you may have to wait for the next one.

What are the requirements for the self-employed?

Nevertheless, it is not impossible for you as a self-employed person or freelancer to fulfill the dream of your own four walls with a construction loan. But it is more difficult and the cost of obtaining construction financing is slightly higher than employees.

There are basic aspects banks look for in a home loan for the self-employed. To help you best prepare for your appointment with your lending institution, we're happy to provide you with a checklist of important tips to keep in mind.

Duration and permanence of self-sufficiency

The self-employed activity should have been carried out for at least three calendar years and should be characterized by a sustained positive income situation, with the least possible fluctuations and, at best, increasing trends. If the opposite is the case, the bank charges higher interest rates on construction financing for the self-employed.

Evidence and proof

In order to show the bank your financial situation, it needs the annual financial statements of the last three years, a current business analysis (BWA) and, if applicable, the income tax assessment notices for this time period.

Credit Rating and SCHUFA Score

A good credit rating and an impeccable SCHUFA are a must for construction financing for self-employed and freelancers. With a negative SCHUFA information you probably have no chance to get a construction financing for self-employed people. Banks assume namely in this case that to the already partly difficult income situation still a bad payment morale comes. This combination is highly risky for banks.

Get your SCHUFA self report before your appointment with the bank. You are entitled to these. Now and then it can happen that unlawful negative entries burden one's own credit rating. You can then request the deletion of these entries. SCHUFA will then contact the relevant company and clarify the situation. If necessary, you have to prove yourself that the entry is not true.

Amount of net income

Officially, banks do not announce limits on the minimum income a self-employed applicant must have to qualify for construction financing. However, there are clues that make it clear what the net income should be.

For example, banks calculate the financial margin and set a minimum amount of 1.000 per adult and 200 to 300 € per child for living expenses to. The applicant – whether self-employed or employed – would therefore have to be able to bear these costs in addition to the burden of construction financing without running into financial difficulties at the end of the month.

In order to reduce the financing risk, you should pay at least 15% of the purchase price from your own funds. Then you are in a position to bear alone at least the one-time incidental purchase costs due at the time of purchase. Equity has another effect: it lowers the interest rate of the construction financing. Those who contribute at least 20% of the real estate purchase price as equity capital to construction financing for the self-employed have a good chance of receiving favorable interest rates. In addition, the equity capital means that the required loan is lower and with it the monthly burden, which the bank also regards as positive. However, 20% of a property, which can be worth several hundred thousand euros, is a tidy sum of money that can rarely be afforded even by permanent employees. Construction financing without equity is also possible, but tied to high requirements.

The condition and location of the property play an important role in determining whether the bank will agree to provide construction financing. Immaculate properties in preferred locations are more likely to be financed than, for example, homes in need of renovation in outlying neighborhoods. Generally, however, banks make no distinction between the properties of employees and the self-employed on this point.

The uncertain income of freelancers and self-employed people do not serve as collateral for the bank, it is advisable to consider other possibilities. Life insurance or occupational disability insurance also protect the self-employed and their dependents against payment defaults and financial hardship in the event of illness or even death.

If the self-employed person does not finance the property alone, but together with, for example, a spouse who has a regular income in an employment relationship, they have a better chance of getting construction financing.

What does the bank set as the cost of living?

Banks use your cost of living to determine if you can afford the loan. For this it carries out an income-expenditure account. Living expenses include:

  • Housing costs: how much is your current monthly rent?
  • Food and clothing costs: What do you spend monthly on food, drugstore items, tobacco products, and clothing?
  • Charges for amusements and travel: What do you pay to go to the movies, concerts and vacations?
  • Costs of pet ownership: what are the costs for your pet??
  • Cost of getting around: Do you have your own car or a monthly pass for public transport?
  • Education and training costs: Attend courses at the adult education center or pay fees for your studies?
  • Costs for hobbies and sports: what expenses are incurred for membership fees in clubs or fitness studios?

If expenses cannot be accurately determined, the bank will use a household allowance to calculate living expenses. This often turns out to be somewhat higher than the actual cost. If the household flat rate is too high, the loan may be rejected. Therefore, it is best to create a budget statement yourself with all income and expenses to have a basis for the conversation with the bank.

Which banks finance construction financing for the self-employed?

Self-employed people often have a hard time finding a suitable bank for construction financing. Still, it's not impossible. While many retail banks refuse to lend to this occupational group out of the gate. Some, however, offer construction financing for certain groups of self-employed people.

Self-employed have good chances with savings banks as well as cooperative banks. In principle, these also finance freelancers and self-employed – but usually not supraregional, but limited to their region. The easiest way to go if you're self-employed is to get your real estate loan through an intermediary like Dr. Close small. Thanks to our long-standing banking relationships, we know exactly what banks look for in self-employed individuals and which lending institutions you'll be welcome at.

Construction financing for the self-employed with Dr. Small

With a construction financing for self-employed persons it depends more than ever on a solid financing plan and preparation. Not every bank is willing to go to the trouble of providing construction financing for the self-employed. Over our decade-long history, we have built partnerships with over 400 banks. We work with you to find the financing partner that is confident in your plan, gladly saving you the hassle of going from bank to bank.

As one of the largest independent brokers for real estate loans in Germany, we have already helped many self-employed people into their own homes at good conditions. In a personal meeting, we determine your options and together weigh which loan options are right for you. To prepare, we need the following documents from you:

  • A business evaluation, confirmed by the tax advisor Balance sheets or profit/loss statements for the last three years (in the case of capital investments, the balance sheets for the last five years)
  • Your last income tax assessments
  • A current self-disclosure
  • A statement of your income and expenses
  • If applicable, evidence of relevant insurance such as life insurance, disability insurance, long-term care insurance

Basically, the more complete the documentation of your finances, the faster we can realize your plan. Also read our guide "Tips for home financing" to be better prepared for your real estate project.

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