How does mortgage financing work during construction?

Buying an apartment while the building is still under construction is usually more affordable, but it raises a natural question: can you get a mortgage for a property that does not yet physically exist? The answer is yes, under certain conditions. This article explains how it works.

Can you get a mortgage for a property under construction?

Yes, but not from the very start of construction. Banks in Bulgaria generally require the building to have reached a certain stage, most commonly Act 14, when the structure is complete, before granting a mortgage secured against the future property. Before that stage, buyers rely on their own funds or a payment arrangement with the developer.

What role does the bank financing the project play?

Many residential projects in Bulgaria are built with financing from a particular bank, known as project financing for the developer. When a buyer applies for a mortgage with the same bank that is financing construction, the process is usually faster and the terms more favourable because the bank already knows the project, documentation and developer. For example, Emblema projects financed by BACB, the Bulgarian-American Credit Bank, allow buyers to obtain mortgages from Act 14 on preferential terms precisely because the bank has already approved the project itself.

What documents does the bank require?

In addition to the buyer's standard income and creditworthiness documents, the bank requires documentation for the property and project: a preliminary contract with the developer, land ownership documents, a building permit and, at a later stage, Act 14 or a subsequent construction certificate. When the project is financed by the same bank providing the mortgage, these checks are considerably simpler.

How does the mortgage fit into the developer's payment schedule?

A typical arrangement is:

• The buyer pays the initial instalment, usually around 20%, from their own funds when signing the preliminary contract.
• Once Act 14 or another agreed stage is reached, the buyer applies for a mortgage covering the remaining amount.
• The bank releases the loan in tranches linked to construction progress and the remaining instalments in the payment schedule.
• Final drawdown and the notarial deed take place after Act 16, when the property is officially ready for ownership.

What should you know before relying on mortgage financing during construction?

• Check whether the project is approved for mortgage lending by a particular bank; this speeds up the entire process.
• Plan for the initial instalment, which is usually paid directly from your own funds rather than a loan.
• Clarify the exact stages at which the loan will be released; these should match the actual payment schedule agreed with the developer.
• Consider the interest terms: preferential conditions offered by the bank financing the project do not automatically apply if you choose another mortgage lender.