Can we afford to build a house without equity?

I would suggest having the bank run the numbers. Then you'll have an overview. Without equity, it is extremely bad. Take a look at the curve of how an interest is paid off, initially only interest and hardly any repayment. That is at least mitigated by equity. You also have to first be clear about what you want. At the beginning, I also thought I could get by with under 300k, now it is at 400k.

So the situation is similar for us: monthly rent EUR 880.00. Net income about EUR 3,000.00 + self-employed on the side (company on the market for less than 3 years) - no equity available. Now we sat down with a consultant who submitted the request to a bank for us. The first bank approved a construction loan amounting to about EUR 200,000. So it also works without equity. Financing without equity is always more expensive. But if you stay in your apartment for another year to save equity, you will continue to pay rent. That already adds up to over EUR 10,000. Just submit a request and then you'll know where you stand. We are now considering how to proceed.

Hello,

as already mentioned, building without equity is quite expensive. Although interest rates have risen in recent weeks and months, we are still at a historically low level. As long as you get a rate acceptable to you, you should go ahead and build. While you can secure a nominally low interest rate for the future through a [Bausparvertrag], since no [Bausparvertrag] has been concluded yet, you would have to bridge finance the [Bausparvertrag], which is comparatively expensive. If you still conclude a [Bausparvertrag], pay close attention to the repayment rate. In the repayment phase, there will be high burdens. 5-7% are not uncommon. Since no equity is available, you will have to finance not only various additional costs but also the completion fee of the [Bausparvertrag]. In the effective interest rate calculation, the completion fee is left out, at least it used to be that way. It is assumed that you pay it in cash. Although there is the nice state [Riester-Zulage] of 154.00 per person, you can quite simply calculate how many annual allowances are needed to recoup the completion fee. A tax-advantaged and consumer-friendly option is the [Riesterannuitätendarlehen]. Apart from some restrictions regarding the property (e.g., no rental), your repayment payments are special expenses in the tax return in this case. The state [Riester-Zulage] is from the start a free special repayment by the state. As with all [Riesterprodukte], taxation applies in the pension phase. Provided one reaches a taxable amount. If the house is intended for old age and the tax payment can be made at once, there is apparently still a tax discount of 30%. Unfortunately, this [Riester]-product is rarely if ever offered (you really have to ask specifically). The bank earns nothing on it besides interest and a modest account management fee for issuing the allowance certificate. For you, these are special expenses and state special repayments. And more repayments mean less interest income for the bank. In addition to the obligatory special repayment right of 5%, one or the other free repayment change is also possible. This way, you can considerably reduce the loan after the fixed interest period to a healthy level. If your company develops well, that is possible. If not, you still have to pay interest + 1% repayment anyway. You have to weigh that personally, use a repayment calculator, calculate various options, ask the tax advisor, and then decide. You have to make these considerations yourself. No bank will do that for you. In this case, I also know what I’m talking about. Within a 25 km radius of my place of residence, I have talked and negotiated with 20 banks. I aborted one or another "consultation" and expressed that I did not perceive 19 "offers" as such politely. Ultimately, one bank followed my arguments. But you don’t need more than one anyway.

Good luck with the banks and possible house building!

Thank you very much for your response. It is always nice when someone speaks from experience. You can see that you know what you are talking about. We have only consulted one financial advisor so far and honestly, I am not 100% convinced. He did tell us that the first bank agreed, but we don’t even know which bank and under what conditions. That’s nonsense, isn’t it? We are now supposed to look out for a plot of land and get an offer for building a house, and then there will be a final decision from the bank. Should we now approach several banks and ask for comparison offers with final figures? I do like that there was an immediate approval, but I want to know where I stand beforehand and not find out later that this financing doesn’t suit me after all. What else do we need to pay attention to?

before you start searching and getting excited, this house, that feature, stay relaxed for now. Which bank? Which conditions? I even believe that a bank will finance it for you.... but is there a debt collection agency from Moscow (or whatever they're called) behind it? First check the conditions, then start searching, unless you already have something concrete and use that as criteria for the loan.

Hello Mia,

so the term "bank advisor" isn't really accurate. Seller fits better. I would send a house offer including land along with all your documents to the Ing-Diba. Or through a broker like Interhyp or something. Interhyp is well-known. Ing-Diba is on everyone's lips anyway, so this is not really advertising. The guys will at least come up with the idea on their own to allocate as much as possible of your loan to the KFW. The interest rates there are very good at the moment. However, you must also pay down more than 1.0%. Then you have a first reference point as to where the journey is headed. If you want to build without equity, you should pay down as much as possible in the first few years anyway. If the entire financing goes belly up for one reason or another after a few years, you at least have the chance to come out of the whole thing +/- ZERO. Another unofficial tip for home builders without equity. An overdraft is not considered a loan. It looks significantly better if you can at least show a little equity to the financing bank. With the KFW loans, you have at least 1 year without repayment. You should use that time to pay back the overdraft. Economically maybe a small loss, depending on your overdraft interest rates and additional costs like broker fees, property transfer tax, etc. Although financing ancillary costs is also not really cheap. But your negotiating position with the banks will certainly be strengthened somewhat by this. Otherwise, I would dig up everything that improves your creditworthiness with the banks. Does the partner perhaps have a claim to full-time work, can carry the installments alone if necessary? Is there disability insurance? Life insurances that could possibly pay off a loan? Use a repayment calculator and calculate various scenarios. With your direct bank offer, then go to a few branch banks. I would politely ask if they can undercut the offer. In your case, I wouldn't let anyone talk you into a Riester home savings contract. You don't even have the upfront commission in cash anyway. If you can just manage the annuity loan with repayment, you'll run out of breath at the latest in the repayment phase of the home savings contract. 3% interest is useless if you still have 6% repayment to do. Unless your income side has improved by then. But that's more wishful thinking and hoping. Also after the Riester annuity loan, I would ask a bank. Have them explain the exact conditions/limitations. In order to fully utilize the benefits, you need two loans. These must then be divided so that your repayment services approximately reach the 4% threshold to get the full subsidy. Then a tax advisor should recalculate this. I am only a certified accountant with tax knowledge and not a tax advisor. Provided the interest rate is right, this Riester option will definitely bring you more. I can promise you that for sure.

Best regards