Construction costs: Is home construction financing really that realistic?

Hello everyone,

we would appreciate feedback on our planned financing for the house construction.

General information about you:

[*]Who are you? M32 and W31
[*]Are there children? no
[*]Are children planned? 0-2
[*]What do you do professionally? both employees
[*]How many hours do you work? M 35h, W 39h

Income and asset situation:

[*]What income do you have (gross/net)? M 3200 € net + W 3800 € net (each without bonus + Christmas bonus)
[*]How much equity do you have? after land purchase still 260 T€
[*]How much equity do you want to put into the house project? 250 T€

Costs:

[*]current warm rent 780 €
[*]electricity 80 €
[*]telephone, internet, mobile 35 € internet + 12 € mobile
[*]Germany ticket 98 €
[*]other mobility 250 €
[*]insurances (including vehicle) 107 €

Living expenses:

[*]groceries 180 €
[*]other (clothing / dining out / sports) 80 €
[*]vacations / day trips: 250 €

Total income and expenses:

[*]total income 7000 €
[*]total expenses 1900 € + buffer for future additional expenses / inflation 300 € -> 2200 €
[*]balance 5300 €
[*]of which current cold rent 500 €

General information about the property:

[*]How large is the plot? 640 m²
[*]new build, old building (year built), house type? new build
[*] ? double carport
[*]How large is the house? ( / usable area) usable area 150 m²

Construction or purchase costs:

[*] including real estate transfer tax, notary, etc. 110,000 € (already paid from equity)
[*]development costs plot is fully developed
[*]construction or purchase costs (including , ) 500,000 € turnkey (standard equipment)
[*]incidental construction costs (e.g. house connections, soil surveyor, construction power, etc.) 40,000 €
[*]outdoor facilities/terrace, paths, garden design, fences, etc... 20,000 € (of which 10,000 € planned immediately, 10,000 € for later)
[*]carport 25,000 €
[*]floors + paint 10,000 € (in own work)
[*]bitumen 5,000 € (in own work)
[*]fireplace 8,000 €
[*]unexpected 10,000 €
[*]2nd car due to location of the plot 12,000 €
[*]kitchen costs 15,000 € (of which 5,500 € already paid)
[*]furniture, lamps, decorations 15,000 €

Cost summary:

[*]total costs 645,000 € (without plot)
[*]deductible equity 250,000 €
[*]financing amount 395,000 € (possibly lower?)

We are aware that the expenses seem very low. However, we have maintained a very frugal lifestyle since university and have been keeping an expense book for some time, so these are definitely realistic.

In addition, we have several questions for you:
- In our view, some buffer is already included everywhere in the construction costs. Are the construction costs realistic as such or should we expect more somewhere?
- We have planned initially to set the loan repayment rate high (compound interest effect), e.g. to 3,500 €. With that, we would still have a reserve of about 1,800 € monthly (tariff increases and promised salary increases not included). To cover the eventuality with children, then a loan that allows repayment changes. Is there anything fundamentally speaking against this, or is there a more sensible distribution?
- We currently have a savings rate of about 60 T€ per year. If we initially have to use equity, in the first year there are no repayments but only interest payments possible, as we understand it. To reduce the loan amount, we are considering at least partially including the money saved again by then and thus reduce the financing amount to e.g. 360,000 €. Does that make sense or is that, for your feeling, too risky? (If something does not work out, a 25,000 € interest-free loan from the parents would also be possible as a last resort.)

Feel free to give further feedback if you notice anything else / if something was forgotten.

Have a nice Sunday and best regards!

If we initially have to use equity, in the first year only interest payments are possible, no repayments, as we understand it.

A financing usually consists of several components (loans). They usually have a provision period, e.g. one year. After that, commitment interest is charged. Once a loan is paid out, you then have to start repaying. But that is roughly correct. Repayment flexibility is also a good idea in case children arrive. You have high equity, but I would only include €200,000 in the financing. €20,000 then for kitchen and lamps, the rest for garden and carport so that you are more flexible. The rest will then be co-financed according to the calculation. I can hardly believe the living expenses. But ok... there will still be quite a bit to come later. There is a car, but no new savings rate, no inspection, etc. included... no gifts, medication, drugstore... I would also check the insurances. Also, of course, other costs arise with a child, keep that in mind. I find flooring calculated a bit too low now. From experience, quite a bit comes on top of the standard price of the house during the construction period. Will the €10,000 buffer be enough? Maybe there’s one or the other food for thought.

In the current situation it fits and the overall construction also seems quite reasonable. You can certainly spend more on floors and outdoor facilities, but for that I find, for example, the carport and ancillary building costs rather high (provided you are building without a basement). But: the future is not simply a continuation of the present. You do factor in the purchase of a second car, but not its maintenance. €250/month is already not much for a car when you include full costs. The elephant in the room, however, is the question of children. An indication of 0-2 is only partially helpful. With children, costs rise and incomes fall. Therefore, in financing, you should definitely look at the possibility of reduced repayment, because €3500 repayment is commendable but quite a significant amount. Basically, there is also the question of the extent to which banks will accept 50% of income as a rate.

Everything very realistic! Perfect! Air available, equity top

Why do you want a payment of 3500 euros at 3% interest? Absurd. At 3%, we are already in the range where extending the financing into the future makes sense (even the official inflation is likely to settle more around 3% than 2% in the New Normal, and the actually felt inflation (calculation method of the inflation rate with quality improvements etc.) is probably even higher). You don’t have to put everything on one card, but a usual payment of 2000+ and the rest of the savings in flexible ETFs (or special repayments if you don’t like that) is certainly not wrong. With such an enormous monthly payment of 3500, unnecessary liquidity bottlenecks (children!) are practically guaranteed.

Thank you very much for your responses. That already gives a good feeling that we are not completely off - in some places we will prudently plan a bit more buffer and definitely keep an eye out for loans with repayment changes as planned. thanks also for your opinion. With 0.9%, we would definitely have done it that way as well. With the current approx. 3% interest, the security of repaying the loan faster is more important to us. As described, in case of loss of income / children, we would of course significantly reduce the rate.