Real estate financing with building savings contract: functionality, advantages, disadvantages and recommendation

Building savings contract – A building savings contract is a widespread and popular variant of real estate financing. However, this type of financing requires some advance time – first you save money for several years before you can take out the building savings loan. Here you can learn how exactly this works, for whom a building savings contract is worthwhile and which advantages and disadvantages are associated with building savings.

Building savings contract: Saving for real estate financing

A building savings contract is a special type of loan. Building savings contracts usually consist of a savings plan and a real estate loan and are concluded with a building society. The basic idea of building savings and the associated building savings loan is the promotion of home ownership. You conclude the contract if you plan to build or renovate a house in the future or buy an existing property.

The building savings contract quickly summarized.

Lukinski Villas

Germany - Spain - USA

  • Special type of loan
  • Consists of savings plan and real estate loan
  • Is concluded with a building society
  • Serves to promote home ownership

Compare immediately current conditions for your building savings contract in the building savings calculator.

Building savings: How a building savings contract works

When you conclude a home savings contract, you specify various points that remain the same over the entire term of the contract. For example, you specify your savings target, also known as the building savings amount, and the term. A typical building savings contract has a term of between seven and ten years.

The building savings contract then goes through three phases:

  1. The saving phase
  2. The allocation phase
  3. The loan phase

You will now learn the details of the individual phases.

Savings phase: Savings period in which equity is built up

The savings phase is the first phase that a building savings contract goes through on the way to financing your property. During this time, you save a contractually agreed percentage amount of the building savings sum. In addition to the savings target, which is between 30% and 50% of the bauspar sum, the duration of the savings phase is also defined when the contract is concluded.

The monthly savings rate is calculated according to the savings amount and term. During the savings phase, it is also possible to make special payments in addition to the monthly payments or even to provide the agreed minimum building savings balance through a one-time payment.

The savings phase in summary:

  • Fixed part of the building savings sum is saved up
  • Over a set period of time
  • Monthly savings rate depends on savings amount and term

As soon as the savings target is reached, the building savings contract enters the second phase.

Allocation phase: Distribution of the building society loans by the building society.

The second phase of bauspar contracts is known as the allocation phase. In this phase, the amount of the bauspar loan is determined. The amount is determined by the difference between the building savings sum and the building savings balance. In order for the contract to be ready for allocation, certain requirements must be met.

The requirements for an allocation of a building savings loan are:

  1. The agreed building savings balance was reached
  2. Further allocation criteria were met

The exact allotment criteria vary from one building society to another. As soon as the allocation conditions are met, the loan is allocated and can be drawn down. The loan can only be used for residential purposes. This includes, for example, the construction, purchase or renovation of a property.

The loan is tied to a residential use.

Loan phase: disbursement and repayment of the real estate loan

Once you have decided to take out the loan, your building savings contract enters the final phase: the loan phase.

It begins directly after the allocation phase and starts with the loan application. The terms and conditions of the loan were already agreed when the building savings contract was concluded. This is often an annuity loan.

The amount of the building savings sum determined at the beginning influences the amount of the loan and consequently also the monthly repayment installments. In contrast to a construction loan, which often leaves a residual debt at the end of the fixed-interest period, the home savings loan is repaid in full within the term.

The loan phase at a glance:

  • Starts with the loan application
  • Terms of the loan already specified at the time of conclusion of the contract
  • Repayment is made in monthly installments
  • As a rule, no residual debt remains outstanding

Advantages of building savings contracts: Security and promotion

Like any financing method, the building savings contract also has advantages and disadvantages. Building savings contracts offer a flexible combination of savings and security for the construction or purchase of a home. They are characterized by attractive interest rates, favorable loan conditions, tax advantages and deposit protection. In addition, a home savings contract can also be used as a hedge against unforeseen events.

The advantages summarized:

  • Combination of savings and credit product
  • Flexible repayment options
  • Attractive interest rate and favorable loan conditions
  • State support through premiums
  • Safe variant of real estate financing

Disadvantages of building savings: High fees and long commitment

In addition to the advantages, there are also disadvantages, as with all financial products. Due to the necessary prior savings phase, home savings contracts are less suitable for immediate financing.

The disadvantages at a glance:

  • Long commitment period
  • Low liquidity
  • Higher costs compared to other forms of savings
  • No availability of building savings in emergencies
  • No flexible repayment options

For whom is a building savings contract worthwhile?

A building savings contract is suitable not only for those who want to fulfill their dream of owning a property, but also property owners. In addition to construction or purchase, the loan can also be used for modernization or as a maintenance reserve.

When and for whom is a building savings contract useful?

  • People who want to purchase real estate in the next few years
  • Investors who want to use government subsidies to build up assets
  • Home savings customers who expect interest rates to rise
  • Real estate owners who value calculation security
  • Home purchase financing supplement

If you belong to one of these groups, a building savings contract can be doubly worthwhile. Building savers are supported by the state and receive state subsidies under certain conditions. The subsidies include the housing subsidy, the employee allowance and Wohn-Riester.

Tip: Taking out a home savings contract is particularly worthwhile during periods of low interest rates.