Construction financing and interior finishing

Good day,

for me and my future husband, the adventure of owning our own house is starting earlier than expected. Since I only finished my training at the end of last year, we have had little opportunity to save equity so far. We now have about €7,500 in a joint savings account, but we will need this for our wedding in May. Otherwise, we only have a home savings contract with about €2,500 on it. My partner has two unit-linked life insurance policies, which we would prefer not to dissolve for this purpose.

We are now considering a semi-detached house with 116m² of living space + attic and about 350m² of land. The turnkey price would be €183,900. My father, who is a real estate agent, suggests that we should better buy the semi-detached house externally turnkey and award the interior finishing work separately. The price would then be €135,000.

I basically have two questions:

First: Is it a problem that we have virtually no equity? We could still manage the costs for property transfer tax and notary, but more would be difficult since the whole thing would have to go through very quickly because there are other interested parties for the house.

Oh yes, which is certainly also relevant: we earn roughly €3,850 net together per month. I work in the public sector and my future husband is an employee in a company. We both have permanent employment contracts.

We had a consultation yesterday at 'OVB' and are still not quite sure what to make of it. He did not really see the lack of equity as a problem...

My second question (even if it might belong more in another subforum): can you manage to award the interior finishing turnkey for €50,000? Neither of us is particularly skilled in crafts, and we also do not have time for it. We would lay the floors upstairs ourselves and take care of the painting (but these two points are excluded anyway, they would not be included in the price for turnkey interior finishing).

So it is basically about electrical work, screed, bathrooms, tiles (in bathrooms, hallway, kitchen, stairs, and possibly living and dining room), heating (where we are thinking about possibly something with geothermal energy), plaster, insulation and drywall, water pipes and whatever else belongs. I may have forgotten something, but the experts here will probably know which points belong to "turnkey interior finishing."

I would be very happy if one or the other could comment on this. Unfortunately, we are really under some time pressure because we would like to secure the property, but on the other hand, we are both absolute beginners in this field and want to do everything right...

Hello,

We are now considering a semi-detached house with 116m² living space + attic and about 350m² plot. Completely turnkey it should cost €183,900. My father, who is a real estate agent, thinks we should rather buy the semi-detached house externally turnkey and award the interior finishing work separately. The price would then be €135,000.

In my opinion, the price per sqm for the semi-detached house is very high – what kind of technology is supposed to be installed that nearly €1,600/sqm is being demanded?

We were at a consultation meeting at 'OVB' yesterday and are not quite sure what to make of it. He didn't see the lack of equity as much of a problem...

With all due respect – these three letters would certainly not be my first and not my last choice for a project like building a single-family house. There are far better specialists. I saw that you are based in NRW – send me a PM with your contact details and I will then give you the address of an independent financer who is also liable for consulting errors and will reliably show you your financing options – without testing the limits of your capacity, because that makes absolutely no sense and can very quickly become existentially threatening.

My second question: is it possible to award the turnkey interior finishing for €50,000?

For that I need, on the one hand, your answer to the first paragraph; on the other hand, I consider this project more than daring, unless your father is very familiar with awarding and handling construction services; the title of real estate agent alone is hardly helpful here. What your father proposes means in plain language that you commission the building shell including windows, roof, and possibly exterior plaster from a general contractor and then award everything – beginning with the electrical work and ending with the installation of the interior doors – to individual companies. That means – with still 11 trades to be carried out (electrical, sanitary, metal construction, geothermal, drywall, interior plaster, screed, blower door test, interior stairs, tiles, and interior doors) at least 3 tenders each (who prepares the exact wording?). The minimum 33 incoming offers have to be reviewed and subsequently the execution by 11 craft companies has to be supervised and incoming partial invoices reviewed and, if necessary, corrected; not to forget the 5% retention. In addition to the trades yet to be carried out, you need an expert appraiser, a construction manager who coordinates and again supervises and accepts the work, etc.

Unfortunately, we are really under some time pressure because we would like to secure the property, but on the other hand we are both absolute laymen in the field and want to do everything right...

According to your statements, you are both still very young, putting yourselves under time pressure is the worst possible advisor you should follow! Several building areas will still be developed, other plots will be offered. For your own interest, clarify your financing first – keep in mind not to exploit it to the limit, because there will always be extraordinary bills (e.g. washing machine broken, car repair, etc.) and if the monthly loan payments leave no room for that, soon you will find yourselves in the auction gazette of your town.

Kind regards

Hello construction expert and thank you for the answer!

what kind of technology will be installed

Phew, I can’t say exactly what materials will be used, I don’t know enough about that. My father, who knows a bit more than I do, thinks the price is reasonable. Included are the paving of the driveway and entrance (the house is in a back development), the building envelope (the house is brick-faced), roof, windows, front door. And of course the plot itself. The land price in our town is about €160/sqm.
My father, through his job, knows someone for every item related to the interior finishing who, according to him, works reliably and neatly. He wanted to make us a cost breakdown today so that the total costs could be calculated; of course, before signing anything, we would contact the individual companies and ask for quotes and how the timing looks. Our nightmare would, of course, be that everything turns out to be more expensive than expected or the work takes longer than planned, because we can’t afford to pay rent and loans at the same time forever.
It’s only important to us, before planning further steps, to clarify the whole thing financially. Therefore, my question about 100% financing and how problematic that can be; I have read so much on the internet now and am totally unsettled.

Hello,

Included are the paving of the access road and driveway (the house is in rear development), the building envelope (the house is brick-faced), roof, windows, front door. And of course the plot itself

So plot (plot) for TEUR 56 and the house price including your list above for TEUR 127.9 for a brick-faced shell house including paving of the access road? Somehow I am now confused by the information in your first reply. Perhaps you could explain what is included in the price of TEUR 183.9?

For us it is only important, before we plan further steps, to clarify the whole thing financially. Hence my question about 100% financing and to what extent this can be problematic, I have now read so much on the internet and am totally unsettled.

The internet is only useful for an initial overview; house construction and financing should sensibly be clarified in a personal conversation – taking into account the personal life situation.

Kind regards

Hello,

from my experience, I strongly advise against 3 - 4 letter financing companies, investment firms, and pension companies. The internet is good and useful as a preliminary research tool, but I agree with Bauexperte that a personal conversation is indispensable for an investment of this scale.

The "old" wisdom of 20-25% equity is still basically valid today.
Time pressure, especially artificially created under the motto that there are many other interested parties and interest rates are rising, very often leads to bad decisions.

If you still decide to act immediately, that is only justifiable with your secure job at ÖTV. However, it must be checked how high the "secure" income portion of your total net income is.

From my distant perspective, your project will cost rather €200,000 with incidental costs by the time it is finished than less. A rough consideration:
€160,000 at an 80% loan-to-value ratio currently costs with a 10-year fixed rate
€7,200 per year at 4.5% interest assumption, plus
€1,600 1% initial repayment results in
€8,800 annuity
€734 monthly burden just for this part.
€40,000 as a KFW loan usable up to 100% loan-to-value under the Home Ownership Program 124
€199 /month, term 35 years, 1 year repayment-free, 10 years fixed interest

€933 per month mandatory payment

Remaining debt after 10 YEARS

Approx. €140,800 from annuities (bank) loan
€34,738 from KfW
so together
around €175,000 remaining debt after 10 years
ATTENTION interest rate risk!
The average interest rate for construction loans in the long term
is 7.8%. That means around 3% more than you pay now.
3% of €175,000 = €5,250 /year = €437.50 per month.
This is your interest rate risk if after 10 years it is "only" at the average.

Your loan should a) not only appear great in the first years
b) be able to be paid securely, therefore low mandatory burdens.
c) be secure if one of you temporarily or permanently fails as a payer.
d) A mandatory interest rate hedging product, e.g., a building savings contract, should be taken out for the largest possible coverage of the remaining debt.

and and and
Still want to become an owner already?

Hello you two and thank you for the answers

Maybe you could explain once what is included in the price of TEUR 183.9?

For €183,900 you would get the house completely turnkey inside and out, whereby of course things like the gas connection, floors on the upper floor and living room, as well as painting and wallpapering work, etc. would still be additional (exactly what is usually still pending with the designation "turnkey").
For €135,000 the house is turnkey on the outside and includes the services I listed in the last post:

This includes paving of the driveway and entrance (the house is in rear development), the building shell (the house is brick-clad), roof, windows, front door. And of course the land itself

Everything regarding the interior of the house we have to and want to assign differently, not because we think we can get it cheaper that way, but because we want everything to be clean and tidy afterwards. Through my father we know that there have been frequent problems with some subcontractors at the construction company, and we want to avoid that.

Time pressure, especially artificially created under the motto that there are many other interested parties and the interest rates are rising, very often leads to bad decisions.

We have now also realized for ourselves that we want to proceed at a pace that seems right to us; I think a rushed decision would be somewhat out of place on this subject. It is important to us to make an exact cost calculation with cost estimates before we commit to anything, so that there is no nasty surprise afterwards and everything turns out to be more expensive than planned.

If you do decide to act immediately, then that is only justifiable through your ÖTV secure job. But here it is necessary to check how high the "secure" income portion of your total net income is.

My future husband earns the main part of the income for us; he is a commercial clerk and I would still claim that his job is secure (as secure as jobs can be, of course, you never have 100% security). He does his job really well and even if there should be problems in his current company, he has so far always had enough offers from other companies where he could start immediately.

From my distant perspective, your project will probably cost closer to €200,000 including incidental costs by the time it is finished rather than less.

We definitely assume that amount too, depending on whether we still work with solar energy and/or geothermal energy, accordingly something extra would be added.
So we definitely calculate with a monthly burden of €1,000 or a little more. I think with a net income of about €4,000 this should be feasible. Even if I take some time off work due to wanting children, €3,000 should still be enough.
We have now definitely concluded the 'OVB' topic for ourselves. Nevertheless, there was one thing I found very interesting, namely financing in the form of a building savings contract? At least according to their example, it is possible to secure a certain interest rate for the entire term, which of course sounds attractive to us at first, so you don’t have to worry about what it might look like in 10 years. Is there any catch to this?
We have arranged two consultation appointments for next week, one at our house bank and then with a somewhat more independent financial advisor (who has nothing to do with AWD, OVB, etc.) who was recommended to us by my father.