Is a construction loan worth it?

A construction loan is a way to finance your work on your own land. When the modality is financing, it is worth knowing that the credit will not cover 100% of the value of the construction. Another possibility is to resort to a loan with a property guarantee. Discover the options and see how to get a loan to build. 

Looking to fulfill the dream of your own home? For many Brazilians, this desire is accompanied by the desire to build from scratch on their own land, carrying out the project of the property they always imagined. 

As well as the purchase, the construction also faces the obstacle of having the money in hand. What many do not know is that the credit market also offers solutions for those who want to build and/or renovate through a construction loan.

This type of credit is not new in the market and has been gaining ground, especially for those who already have land, but do not have the necessary amount to get the work off the ground. 

What is the difference between financing and construction loan?

First of all, we need to clarify that there is a difference between financing and construction loans. Although they are often treated the same, they work differently. 

In a financing, the bank grants the credit to be used exclusively for the agreed purpose: the acquisition of a car, house, apartment, land or even the construction of a property. The money is not deposited in the consumer’s account, but transferred directly to the concessionaire, property owner, construction company, etc.

In a loan, the release of credit is not tied to a specific use of the money. The amount is deposited in the current account indicated by the consumer, who, in turn, can use it as he sees fit. 

Due to the nature of the financing, it is common for the application and documentation process to be more bureaucratic, involving more steps and people. Another difference is in the lower interest rates and longer terms that the consumer finds when financing. 

But, as we will see later, there are already loan modalities that offer similar conditions. This is the case with a secured loan . 

Even knowing the difference between these modalities, it is common that, on a daily basis, many people talk about “loan for construction” wanting to actually refer to financing. Next, we will explain better how each of these modes works.

How does construction finance work?

Construction financing follows the same logic as traditional financing: the credit must be used for the purpose agreed in the contract. There are financings that are specific to the acquisition of land and construction, payment of labor or purchase of materials. 

A characteristic present in almost all banks that provide construction financing is that the money is released in parts, as the work progresses. The logistics and conditions for release will depend on what is agreed with the financial institution, but it usually works within the scheme of measuring works. 

This means that, from time to time, a contracted engineer will “measure” the progress of construction. If it is progressing as foreseen in the physical-financial schedule, the new part of the credit is released for the next phase of the project. 

Realize that funding is closely tied to a project. This is because having a construction project is one of the requirements demanded by banks. 

How to finance 100% a construction?

On the other hand, it is important to point out that it is not possible to finance 100% of the construction. Typically, the credit covers up to 80% of the project value. Thus, if you are thinking of using this modality to make your dream of owning your own home come true, plan ahead to pay part of the costs of the work. 

Other features of financing for construction in the SFH are:

• Do not commit more than 30% of the family income to the installments;
• Be over 18 years old;
• Be a Brazilian citizen or have a permanent visa;
• Prove income;
• Have no financial outstanding;
• Do not have any other outstanding financing under the same title.

How to finance construction on own land?

There are some financings that allow you to use credit to acquire land and carry out construction. However, if you already have land of your own, the process becomes easier. 

On the other hand, the land documentation will need to be up to date. That is: deed in your name, IPTU without pending issues, approval of the construction project by the City Hall, among other requirements that may vary from institution to institution. 

So, if you want to finance the work on your own land, choose your bank of choice and ask for construction financing. A little further on, we will talk about the banks that offer this type of real estate credit and their conditions.  

How does a construction loan work?

Now, let’s go back to talking about what a construction loan is. We already understand that its main difference in relation to financing is the fact that consumers can use credit as they see fit. In addition, the money is deposited directly into the person’s account.

The operation of the construction loan will actually depend on the type of credit chosen. Banks will hardly offer specific loans to carry out works. What you can do is get to know the existing types, check which one best fits your profile, apply for credit and use it in the construction of the property. 

A point of attention, however, is the fact that loans have a lower credit value compared to financing. There are some modalities that go against this trend, this is the case of credit with guarantee of goods, which lend a percentage of the item’s appraisal value. 

Below, we will explain how it works in the case of vehicles and real estate. We also bring the option of the traditional personal loan. If you don’t want to take out financing, study each one of them in depth and see which one can work as your construction loan!

Personal loan without guarantees 

We bring the personal loan because it is a more accessible and easier modality to obtain. As there is no guarantee, your target audience is broader. However, this is one of the reasons that this credit has higher interest rates. 

The interest rate and the amount available for borrowing will be closely linked to the consumer’s proof of income and credit score . The relationship with the financial institution can also influence this moment. 

If you choose this type of construction loan, it is important to know that the credit value is not usually very high and that it will hardly finance 100% of the work, being more suitable for small renovations or less significant expenses of the work. 

Payroll loan

Don’t need such a high amount of credit for construction, but don’t want more attractive interest conditions than those offered on an unsecured personal loan? Payroll loans can be a way to get a construction loan. 

In it, your salary, retirement or pension is the bank’s guarantee that the debt will be paid, drastically reducing the risk of default. This is because the amount of the installment is deducted directly from the salary or benefit, even before it is deposited in your bank account. 

With this guarantee, the bank can offer better interest conditions. On the other hand, most Brazilians can only commit up to 40% of their salary or benefit to installments of payroll-deductible loans. That is, the credit amount may not be very high and will depend on how much you earn. 

Therefore, it will hardly be the loan to build 100% of your property. 

Loan with property guarantee 

But don’t be discouraged! We are now going to introduce a type of credit that can be the construction loan for a large part of the project. And in some cases even financing 100% of the work. All this with low interest rates and long payment terms. 

It is a secured loan. In it, you can get up to 60% of the appraisal value of your asset (this percentage varies in some financial institutions). Here at CashMe, for example, the minimum credit is R$50,000 and the maximum is R$15 million. 

Interesting values ​​to build and renovate, isn’t it? Realize that the credit value will depend on your property. Even so, the amount already tends to be much higher than that offered in unsecured and payroll-deductible personal loans. 

Loan with vehicle guarantee

You don’t have a property or don’t need such a high amount of credit, but still want to take advantage of the good interest rates and long payment terms of a credit with collateral? If you have a vehicle, it could be just the thing you need to get a construction loan!

As in the use of the property, in the credit with vehicle guarantee , the good is in fiduciary alienation. In other words: you get the money and you can continue using the good normally. The credit value is also linked to the vehicle’s appraisal value, which can range from 50% to 90%. 

The type and conditions of vehicles accepted varies greatly from bank to bank, and there may be restrictions on brand, mileage, year of manufacture, etc. In general, the property must be less than 15 years old. Some institutions only accept passenger vehicles. Others accept cargo and transport vehicles. 

Credit with a vehicle guarantee can be an interesting option for those who want to take out a loan to build a smaller project or even just one stage of the project. For its value, it can also be used to cover expenses with construction materials, labor or to finance 100% of a renovation.

Which bank finances construction?

Do you already know the possibilities of taking out a construction loan? After choosing the modality that best fits your situation, you will need to research the offers of financial institutions. 

Here, we will list some banks that provide construction loans, also considering financing. But don’t forget the difference between financing and loans, okay? 

Construction loan Caixa Econômica Federal

Caixa Econômica Federal has one of the most popular construction loans on the market. In fact, one of its lines allows you to finance the purchase of the land along with the work.

It is a classic example of a construction loan governed by the SFH, and the FGTS can even be used to amortize the installments. The property/land is in fiduciary alienation until the debt balance is settled. Some requirements of the Box are:

• not have any credit or bank restrictions;
• prove sufficient income to pay the benefits;
• benefits that do not exceed 30% of the proven family income;
• documentation of the property up to date;
• construction project done by engineer or architect;
• project approved by the City.

The project made by the professional also needs to bring the construction schedule in stages. The supervision of the execution of the work will happen based on this schedule. As the steps are completed, credit is released.