Buying a house from the father - how to best finance it?

Hello,
my father wants to emigrate abroad with my stepmother and has now offered me his house for purchase. The purchase price amounts to 200,000€ and includes the costs for the notary, land register entry, etc.

Since I have not really dealt with this topic so far and my father's project has somewhat surprised me, I hope to receive some useful tips on financing here.

Currently, my girlfriend (35), my son (11 months), and I (32) live in the upper floor (approx. 94 sqm + converted attic) renting (500€/cold). On the ground floor (approx. 105 sqm) currently live my father and my stepmother.
If we buy the house, we would move downstairs and want to rent out the upper apartment for 600€/cold to third parties.

For renovation costs, purchase of a new kitchen, etc., we have budgeted about 20,000€. The upper apartment was completely renovated except for the bathroom about 3 years ago and received high-quality vinyl and tile coverings, the walls/ceilings were plastered and covered with smooth fleece.
The gas heating system for both apartments was completely renewed about 4 years ago.

Due to my girlfriend's parental leave (2 years), we currently have an income of about 2,560€ per month available. We would like to have a second child soon, which means the income will not increase in the foreseeable future. We have no debts, but apart from a small buffer of about 5,000€, we also have no equity. However, my grandfather wants to support us with up to 35,000€.

I inquired about financing at VR Bank and the advisor estimates the value of the house + land based on the available photos, cadastral map, etc. at about 300,000€. The final offer is still pending and is expected to reach us at the end of the week. Unfortunately, VR Bank only offers a fixed interest rate for up to 10 years; the remaining debt is to be settled via a home savings contract. Does it make sense to consider a full loan with a fixed interest rate for the entire term? We would like to keep the option open for special repayments and early repayment of the remaining debt, because part of the approximately 1,700 sqm large plot is farmland.
From one of the local city planners, I have learned that in about 4-5 years, planning for a new residential area is to begin behind our house...

Best regards

Daniel

Ask your Volksbank about financing from DZ HYP or MHB. There is also a maximum fixed interest period of 30 years.

What is the alternative? Your father sells to outsiders and you get nothing. That’s how you know the house and it might be a bargain. With your income, you are not a premium customer either. Here, you have to accept if something is offered. Feel free to also negotiate with [baufinabzirrungsmakler]. New builds cost many times more. I don’t see you with this income.

Unfortunately, VR Bank only offers a fixed interest rate for up to 10 years, the remaining debt is supposed to be paid off via a building savings contract. Does it make sense to consider a full amortization loan with a fixed interest rate over the entire term?

Combinations of annuity loans and building savings contracts are complicated because often only on the second or third look (and after doing your own calculations) does it become clear what the financing really costs. In case of doubt, I would always prefer a simple annuity loan. Full amortization loans are also (AFAIK?) somewhat more expensive than regular loans. But here you naturally have to include your risk tolerance and your need for security. You could create one or two scenarios of how your situation might look in 5 ... 10 years (single earner with four children? Or dual earners with two children? Same job as today or career into higher salary brackets?). From this, to some degree, you could deduce how long a fixed interest rate period should be chosen. Now the most important thing: Since you want to rent out part of the property, you should contact a tax advisor (or educate yourself). The expenses incurred for the rental property reduce the profit and thus the tax. This naturally also applies to loan interest and depreciation.

According to Volksbank, there is only the option to renegotiate after ten years or to pay off the remaining debt through the building society. I specifically asked twice.

What is the alternative? Your father sells to an outsider and you end up empty-handed. That’s how you know the house and it might be a bargain. With your income, you’re not a premium customer either. Here, you have to accept if something is offered. It’s also common to negotiate with mortgage brokers. New construction costs many times more. I don’t see you managing with this income.

It has not been explicitly said so far, but that’s probably how it will happen. My stepmother is the driving force and even managed to have my father register her in the land register... Before I end up "empty-handed," I wanted to take the chance for us, since we are only "average" earners.

Two children, that is our mutual wish. As soon as the kids are in kindergarten, my girlfriend (by then wife ;) ) will also go back to work; how many hours that will be remains to be seen. Currently, I take home €2200 net, after deducting the company car, I have just under €1870 left. The salary will be increased slightly soon. My girlfriend was earning around €1600/1700 net before parental leave.

Regarding the expenses for the rental property: does it make sense to split the loan and pay off the apartment that is self-occupied with a higher repayment rate early?

Here are two pictures of the house.