Build big? Or continue renting?

Hello community, I have already read through many threads, so that Bauexperte and others have given me a realistic idea of what our house would cost.

We are currently 4 people, my wife (27) will start a well-paid part-time job in autumn, I (38) will become a civil servant in July. In short, from October onwards we will have about €3000 disposable income after deducting all costs. Thanks to federal housing regulations, we live quite cheaply in a rented apartment, which is also idyllic because it is in one of the most beautiful districts of Cologne, next to a park, in a quiet residential complex. The 3 rooms are sufficient for us and our two little daughters, but we still wish to have 2-3 more children in the next 10 years.

As equity, we would have, excluding our emergency reserve of €25,000, the sales proceeds of about €150,000 from my parents' terraced house, which is currently still rented out. The plot (305m2) would cost €100,000 if we were awarded the bid.

As a house, we had thought of a semi-detached house fully basemented, with a geothermal heat pump and an expanded attic as well as a garage. Size of the house 7x12m, which would mean about 170m2 of living space.

After a cautious estimate including Epi's experience values, I came to €370,000 for the house including all additional construction costs, garage, garden, etc.... including a buffer of €10,000.

That would mean for us, we would have to take out a loan amounting to €320,000.....

Originally, before I got to know this forum, I had looked at prices for single-family houses and semi-detached houses from manufacturers and was usually roughly at €250,000. But I didn't know that a lot of additional costs would still arise. I had mentally approved the €200,000 loan, but an additional €120,000 seems a bit steep to bear. I didn't think that building a house would be so expensive. The problem is that we would currently be building somewhat above our needs, but considering further offspring, we would need the reserve. I don't know what sense it would make to limit ourselves to 120 sqm only to find out in 10 years, with a total of another two to three children, that our house is too small... and then sell and build anew?

On the other hand, the sum of €320,000 as a loan seems astronomical to me. At 3-4% repayment, it would take about 18-20 years to be debt-free. And in the meantime, we would have a maximum of €2000 left after all liabilities to live on.

Therefore my general consideration and the request for your feedback on this – we are currently considering letting the house-building project go and continuing to live in the rental apartment, but when the need arises with child 3 and 4, we would have to move out anyway. Possibly buying the apartment in the next few years on special conditions would be possible, in order to sell it profitably on the open market later (from when does one pay no taxes on that?). Then we would have even more equity, but that would be a question of about 10 years, I think.

On the other hand, building and living in the large own home would be associated with already benefiting with the children from something that you would otherwise only buy/build in 10 years – if more equity were available. And when do children need a house – I think rather when they are small, right?

What are your feedbacks on our situation, what would you advise? We have lived debt-free so far – what is life like with high repayments per month? Is there still money left for holidays, investments, or is the house the all-determining center of life for the next 10-15 years?

Thanks for your assessments!

Regards

sw1008

What you should be advised.... no idea. Apparently, you are happy as it is. If you actually have €3000 left after deducting your obligations, there is definitely nothing financially standing in the way of such a construction project.

We didn't have to finance that much because we had more equity, but living with the financing is quite manageable. We chose a repayment rate similar to our old rent (about €1000 monthly). That would comfortably take us 36 years to pay off our loan, but we still have a good cushion to make at least €5000 in special repayments each year, and with that our goal of having the property paid off in 20 years is very realistic.

You should not plan the financing too tightly, and you need to secure flexibility. We can often change the repayment rate for free and have the right to make 10% special repayments per year. We had to fight for these rights with the banks. But this way we can now run it minimally to finish the house and can pay back more from next year on. If you want more children, you have to take that into account of course. The best approach has proven to be that your salary should cover the financing and the family's living expenses. Your wife's income is then basically luxury/special repayment money. That’s how it is for us. Everything I earn can be spent; my wife’s income (currently parental allowance) goes into a savings account from which purchases for the house and garden can be made, or if the car is complained about again, or a vacation is to be financed.

Personally, I believe that with 5 children, one should definitely live in a house. With a garden and outdoor space. Because in rental apartments, eventually disputes with neighbors arise due to the "noise" of the children.

I thought that building a house would be expensive, but that it would be this expensive, I could never have imagined. If I had known the numbers that are on my sheet today before signing, we would not have built. We built 150 sqm without a basement on a 700 sqm plot as a KFW 55 house. And in the meantime with all costs, including moving, new furniture, etc., a 4 stands in front of the total amount. An incredible number. But calculate 30 years of €1000 rent every month, that number is at least just as nasty.

It is and remains your decision, and probably the hardest one you have made so far in your life.

Well, our rent currently amounts to €412 for 72sqm in Cologne, so we definitely have to choose significantly higher repayment rates if we don’t want our grandchildren to still be paying it off. Financial freedom is important to me, meaning that while I would like to build and live nicely, I don’t want to give up the annual vacation or otherwise have to absolutely restrict myself. The house should not become a beloved millstone around the neck. Rather, it should be a means to an end, i.e. a home for the children.

This leads me to consider setting the repayment somewhat lower, knowing full well that this will extend the loan term to 25 or even 30 years. Possibly, in the meantime there will be the opportunity to sell my parents’ house where they currently live and pay off the remaining debt, maybe after 15 years when the fixed interest period ends.

In the low interest phase like now, it should theoretically be worthwhile to choose a longer loan term and fully use the maximum fixed interest period. This way you have financial leeway with a lower repayment and, if you have agreed on special repayments, the chance to pay off the loan earlier with special repayments – who can really see 15-20 years into the future.

I am slowly getting used to the exorbitant loan amount. As long as it doesn’t destroy our life and existence and we can maintain just as frugal a lifestyle as before (yes, we buy the offers from the circulars and yes I compare prices when refueling, shopping, and save where it makes sense, but out of conviction).

Maybe someone else can share their experiences, the previous contribution has helped us a lot.

I wonder when it became common that you have to finish your financing within 20 years. 30 years is usual and would also suit you (age). You have to take it all a bit more relaxed, then there will also be more relaxed repayment rates ;)

Well, in 20 years I would also have to come up with some pocket money to financially support my children during their studies and training - therefore.

Off record, I can add the following:

We could repay faster, but we deliberately don't, because we don't really want to have to adjust our lifestyle. Right now, we are in the family formation phase with the first child, maybe soon the second. You want to be able to treat yourself.
As already mentioned, the house is only slightly more expensive than our rent, but it has a huge added value.

We have a 20-year fixed interest rate, and if things really go badly, we will have a remaining debt of about €150,000. Even if interest rates are then at 8 or 10%, the payment would only be about €400 more expensive than now. That shouldn't be a problem for two academics to manage, even if the kids then start studying.

In the worst case, the bank just makes a lot of money off us, but whether it's the bank or a landlord is relatively irrelevant to me.
Sure, it will be very nice at some point when you actually own the house, but then you have to think again about where to put your money sensibly. At the moment, I am very glad not to have that worry. Before building the house, I could watch the inflation rate eat away at our meager interest. Every month we added a lot, knowing that there was less and less in the bank.
But no one will drive me into stocks or funds that quickly, I have no trust there.

ypg wrote it nicely. Relaxed repayment rates bring relaxed residents :)