So I spoke again yesterday with my architect who planned the extension, and he said that depending on the property, its price, etc., and with a good amount of personal effort, the new build project could be managed with €600,000.
Nevertheless, I would have to borrow between €450,000 and €550,000, assuming I can sell the old house for a good price (>€300,000) – which in his view is still realistic.
That would mean around €1,800 monthly at 2% interest and 2% repayment – which is still over 40% of the income.
I will talk to the bank...
If I go back to option 1 or variations of it, I have the problem on the other side of financing – the collateral.
Situation:
The house is registered in two units in the land register, one per apartment. When I took over, a subdivision declaration was submitted because I first "bought" the upper floor in 2011 and fixed up "my" apartment there. The second part followed in 2013. Thus, the house is divided into two land registers with 40% and 60%, but both in my name. If the notary didn't charge €900 for it, the subdivision could be easily merged back into one land register – just as a side note.
For the upper floor, I took out a loan of €85,000 in 2011 at (today) a bad interest rate (4.09%) – there is still about €75,000 principal outstanding. The fixed-interest period expires in mid-2019, then the principal will be about €72,000. Actually, I had a building savings contract for it to reduce the debt to around €35,000 after the fixed-interest period ended, but I had to split and use it early in 2014 to expand the roof, so there is not much on it currently (~€5,000). So I have to arrange follow-up financing.
For the ground floor, I took out a loan of €115,000 in 2013 at 2.75%. This is a TA loan linked to a building savings contract. The current status is logically unchanged, with nearly €20,000 on the building savings contract. The repayment of the loan by the building savings contract is scheduled for 2023; after that, I will pay off the building savings loan for another 8 years and be done.
In total then: €200,000 loan, €190,000 principal outstanding, building savings credit of about €25,000. Market value of the house according to the bank: €250,000 (estimated before renovations). According to various sources, it is now about €300,000.
Currently, I pay installments:
- €400 Loan 1
- €260 Loan 2 (interest only)
- €200 Building savings contract 1 (flexibly usable)
- €400 Building savings contract for Loan 2 (assigned to the bank)
In addition, I pay another €300 into various funds as provision for me and each of the children.
So a loan that costs €1,500 per month and replaces all the above installments would make no difference for me except that the provision contracts would have to be reduced – but Grandma/Grandpa would step in and continue to pay for the children. And that without my wife's income, which currently is not present but will flow in again from 2018 at the latest with at least €450, and by the time all children go to kindergarten (today that means mid-2019, or if another child follows, mid-2021 at the latest), my wife will work full-time again and generate about €1,000 net.
Hence my claim: I can estimate monthly burden quite well, what I can afford, and what not. I am insured against most eventualities (death, occupational disability, unemployment,...).
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It looks different regarding the loan collateral. If the house bank continues to refuse to revalue the house, I won't get a cent more. Normally, the bank only lends up to 76% – mine is already almost 80%.
If I now build an extension, I will definitely have to change banks to one that will lend more than 80% and then also give me money for the extension. The extension is supposed to cost €150,000 all in (including ancillary building costs) – the increase in value can be estimated by the architect at about €80,000-90,000.
The new value of the house then (based on the "wrong" €250,000) would be €330,000-340,000. A loan-to-value of 95-100% is therefore necessary. At least some banks do that. Although most of them would probably also value the old building higher so that in the end I should come to a loan-to-value ratio of 80-85%.
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So, I approach option 1 again – extension of the existing house. With €150,000 I build an extension of 7*10m, creating a bathroom (12m²), a kitchen (14m²), and a living/dining room of 32m².
Then we are missing a bedroom or children's room. Integrating this into the extension area is theoretically possible but practically not. The new living room would end up just a narrow corridor of about 3*10m or something like that. Another layout is hardly possible because something essential always opposes it (load-bearing wall, logical arrangement, existing connection possibilities,...).
Not much can be changed in the old building, for the same reasons, and due to the knockout criterion that I have to live there with 2-3 children while the extension is being built.
I have thought of 2 options that still seem somewhat realistic after 2-3 sleeps over it but both require a lot of clarification and possibly are not even allowed.
Option 1: On the ground floor, there is (not approved) a conservatory over the full width at the extension – 2.5*10m. I could overbuild it with the extension. This costs more money but also brings 20m² more living space. According to the rule of thumb, I would have to calculate €20/m² * €2,000 = €40,000, plus ancillary costs and additional work for foundations and reconstruction of the conservatory – overall €200,000 instead of €150,000 for the extension – which would also have to be approved first (more than 40% of the property would be covered).
Option 2: Instead of the extension, I would expand the property by purchasing neighbors’ land (already talked to them about it). This would increase the property from 600m² to almost 700m², and I could then build a house for my parents "in the garden," so my family could fully use the "old" house. We would then have 1-2 rooms and about 80m² of "too much" space but for the "small" house probably not much more cost than for the extension.
Again, with the rule of thumb 80m² * €2,000/m² = €160,000 plus ancillary costs etc., I also come to €200,000.
So many thoughts, so many theoretical possibilities. But everywhere a catch... Do you understand why I would prefer to sell the old house and start from zero somewhere?