Assessment of Financing Opportunities

Hello everyone,
we – that is my wife and two small children – are at the beginning stages of building a house and would like to get an assessment from you.
I thought for a long time about whether I should even create this thread and just go to the bank right away, but now, between / after the typically "dead" bank holidays (ok, not just at the bank dead time :-)), curiosity is bothering us since the upcoming appointment will only take place in mid-January. We live in the southwest of Germany (BW – near Baden-Baden), have owned our dream plot of land since mid-2015, and would now like to take the step within the next two years. Considering the Baukindergeld (child benefit for building), one could also say that Father State is now kind of pushing us a bit. But that wasn’t the sole decisive factor. The plan for the next years has been in place for a long time.

A few key data points:

- Plot of land 825m2, financed, still 99,000 euros outstanding (from formerly 150,000 including acquisition incidental costs). Current plot value approximately 250 €/m2.
- Bauspar contract with house bank since mid-2017. Contract sum 200,000 euros, monthly savings rate currently 500 euros. Paid in 7,000 euros so far (the first months were the closing fee). Interest 1.95% at allocation.
- Plot installment 800 euros monthly, 99,000 remaining debt, 2.0% interest
- Current net cold rent 690 euros + 300 utilities (thus about 1,000 euros)
- Monthly net income as a freelance tax consultant about 5,000 euros net
- Two children (one child 2 years old and one child 3 months). I’ll leave parental allowance aside since my wife does not intend to work full-time after parental leave. Previously 30k gross)

We are currently paying 1,300 euros for the "project" (plot + Bauspar), plus the cold rent of 690 euros. That would put us at 2,000 euros. I would not like to invest much more "cold" for the matter, possibly a maximum of another 200-300 euros, fundamentally that wouldn’t be a problem for us. But I also wouldn’t have a problem with financing where at the end of the term something remains outstanding. It does not have to be zero after 25-30 years. We are both 30 years old.

I am troubled by the question of how the already purchased and partly paid plot is taken into account and what amount would be realistic for a new build house for us given the current income.
Over the last 5 years, we have invested everything financially possible (except for vacations :-)) into the future project (in the form of the plot and the Bauspar) and have comfortably managed the previous monthly burden. Unfortunately, I have only been self-employed as a freelancer for almost exactly three years. For about 1.5 years with the aforementioned consistent monthly income, trend rising, but clearly, the bank doesn’t care about that. I have always been self-employed, but so to speak with a professional fresh start, as I said, almost exactly three years ago. Possibly that is our weak point.

Otherwise: No private and no business debts at all. Only a car leasing and a car financing. SchufaScore for both >99% without abnormalities.

Hope for a reasonable, realistic assessment. What would you still take out as a loan given the mentioned conditions, or what amount would be possible for the house? Do you consider the timing realistic and sensible?

Many thanks, best regards, and a happy new year to all.

I am troubled by the question of how the already purchased and partially paid-for property is taken into account

Yes, not the value itself, but what you own is considered as equity. In your case, that is 1/3 of the property.

Otherwise: No private and no business debts at all. Only one car lease and one car financing. Schufa score for both >99% without irregularities.

Financing IS a debt. Any liabilities ARE debts.

Hello and welcome,

how much longer does the fixed term on the property last? There could be problems here because the bank financing the construction would have to be subordinated. The first bank does not have to vacate this. Whether you find one there or whether the interest rate is interesting remains to be seen.

Probably, and also because of your profession as a freelancer, it will come down to the main bank. I don’t really understand the high building savings contract. I would get rid of it and put the 500 € into the main financing to increase the repayment.

Hi,

phew, this won’t be easy.
First about your equity: The purchase of your plot was 3-4 years ago and the value seems to have increased from your point of view. Your goal should be that the bank sees it the same way.
Was the purchase price €150,000 that you fully financed? If yes, I’m afraid the bank will only take this €150,000 as value. If €99,000 is still outstanding, naturally only the €51,000 is counted as equity. If the land value is calculated by the bank with 825 x €250, of course accordingly more.

How high is the remaining loan of the car financing? You have to deduct the outstanding amount from your equity.
Are there any other reserves besides the €7,000 on the [Bausparer]?
I’m not very familiar with [Bausparer], but I think it was not a good idea. You will never get this huge building savings contract allocated, at least not if you want to use the money now for financing. The 1.95 % interest at allocation is also not that great currently. You can cancel it and use the money, but then the closing fees are lost.

In any case, you should still have liquid funds available for things that should not be financed => furnishings such as kitchen, furniture or incidental building costs.

You have to talk to the bank about income from self-employment.
€2,000 just for the house seems quite borderline to me for 4 people. From the remaining €3,000, besides the usual costs (food, clothing etc.), the car financing and leasing also have to be paid.

Your children are cheap now. How will it look later with childcare costs ([KITA])?

Hello everyone,

Hello and welcome,
how much longer does the fixed interest period on the property run? This could lead to problems since the bank financing the construction would have to take a subordinate position. The first bank does not have to give way. Whether you find one or whether the interest rate is attractive remains to be seen.
Probably, and also because of your profession as a freelancer, it will come down to the house bank. I don't quite understand the high building savings contract. I would get rid of it and put the 500 € into the main financing to thus increase the repayment.

The fixed interest period on the property runs until 2030. It is the house bank, so it will be the same bank anyway. We also have the building savings contract with the same bank. Why did we conclude it? The classic: it was recommended to us. Well, the bank was happy about the 2,000 euro closing fee. But it seemed sensible to us to secure the interest rate at first. Together with the property, we would then (that was the thought) already have 325,000 at 2% "secured." Sure, only after allocation, but still.

A financing IS a debt. Any liabilities ARE debts.

Sorry, that is of course correct. What was meant is that there are no pure consumer loans or other old burdens. The car could simply be sold and instead another leasing contract could be taken out, which I certainly would not prefer and do not intend to do.

Hi,
Was the purchase price 150,000 €, which you fully financed? (...)

Are there any other reserves besides the 7,000 € in the building savings contract?
(...)
In any case, you should still have liquid funds available for things that should not be financed => furnishings such as kitchen, furniture or also incidental construction costs.
Regarding income from self-employment, you need to talk to the bank.
2,000 € just for the house seems quite borderline with 4 people. From the remaining 3,000 €, besides the usual costs (food, clothing, etc.), there is still the car financing and leasing.
Your children are still cheap now. What about later with care costs (daycare)?

Property: purchase price approx. 140,000 + incidental costs. 125,000 euros were financed. The rest (25,000) was equity. We were lucky; the property was advertised somewhat hidden at the time and had to be sold quickly. Long story short, the neighboring properties were sold for 225-250 shortly afterward.

Reserves for furnishings, incidental construction costs, etc. are available.

Only the leased car is private and is still deducted from the "net" income. The financed car belongs to the business and was already taken into account in the above net.

Regarding childcare: no daycare, but kindergarten yes. However, I leave that aside because my wife is employed by me as a mini-jobber (450,--), and together with child benefits (and currently still parental allowance), that should cover all the children’s expenses in my opinion.
Put another way: 5,000 net + 450 mini-job + child benefit + parental allowance. After parental leave, possibly part-time back to work, but that thought still needs to mature, so leaving that aside for now.

Thanks for your answers!

Keep us updated on what offer your house bank makes you. The home savings contract is probably sensible because you can only fix the interest rate for a short period.