Construction financing and support without ownership rights

Thank you very much for the insightful feedback :)

You are right that the route via purchase and usufruct right would probably be easier and more sensible. The market value development is not foreseeable in the next 15 years (even if notarial modernization measures could be offset).

I also calculated the value of the usufruct right and come to about €130,000 for my grandmother and about €225,000 if I were to retain the usufruct right. That would severely limit a possible loan if I took the usufruct right, or am I mistaken here? For my grandparents, I calculated the younger person.

I think the narrower choice of banks could also be negative in terms of interest rates.

I also once calculated the value of the right of residence and came up with about €130,000 for my grandmother and about €225,000 if I were to receive the right of residence. This would severely limit possible borrowing if I took the right of residence, or am I making a mistake here? For my grandparents, I calculated the younger person.

First of all, we would need to know what kind of house it is. Single-family house/two-family house/multi-family house. The value of the right of residence is then calculated using the rental value for the areas burdened by the right, the remaining life expectancy of the entitled persons according to the mortality table, and the whole discounted to a present value. This amount is then the prior charge for the bank if this right of residence is to be registered in first priority. Subordinated, it would not be so serious. If the house is now worth, for example, €400,000 and you receive the right of residence (value €225,000) in first place in the land register, financing would be practically impossible. If it is worth €800,000 and the grandparents receive the right of residence you calculated, financing is quite conceivable.

The ownership situation is now questionable. My grandparents were advised to remain owners and grant us a right of residence as well as to additionally register a testamentary preemptive right.

You will certainly still talk to experts. Maybe you also want to discuss the advantages and disadvantages of "right of residence" versus "usufruct," if that has not already been done.

When an inheritance is imminent, some family people suddenly get quite excited

Especially since it cannot be definitively determined at present who will be entitled to inherit at a later time, perhaps only in decades. I am also thinking of patchwork families, divorces, remarriages, illegitimate children, and much more.

It is a single-family house with an estimated annual rent of approximately €13,200 for about 170m2. The grandmother's capital value is 9,792. My capital value would be 17,342.

I looked at the table from 01.01.2020 for the capital values; the figures may have been slightly updated.

A division into 2 residential units is not possible due to a single access that cannot be expanded because of [denkmalschutzrechtlich]. This was communicated in an initial brief statement.

The market value would have to be estimated; no information is available for this.

A small update from my side:

We have spoken with an inheritance law attorney and he advised that the payout to the children and co-owners (percentage still open) would be feasible solutions. This way, the grandparents could remain owners and we could still obtain construction financing.

During the conversation with a bank advisor, he mentioned that a loan secured against the proportional ownership is possible. For example, if the house is worth EUR 200,000 and we have 50% ownership (which the bank suggests we should at least aim for), we could borrow EUR 100,000. He only stated that, from his perspective, it makes sense to align the proportional ownership with the necessary loan volume in order to have the best possible loan-to-value ratio. A payout to the heirs can also be done with the loan.

The second option includes a rental agreement with the grandparents, no ownership rights for us, and the taking out of a private loan for the renovations. These costs would then be settled against the house value in the event of inheritance and the payout to the children would be postponed to the future (according to the lawyer, one could also use the current value and, for example, specify that each receives EUR 50,000 in the event of inheritance). The bank would be reluctant to support this option. Although we could get up to EUR 75,000 with a term of 84 months (interest rate between 3% and 5% depending on creditworthiness), the bank clearly advises against it, since modernization loans are actually only intended for owners. The bank here would only "turn a blind eye."

Overall, we would face roughly the same cost positions in both scenarios. We actually see no advantage in the second scenario, as it postpones the transfer of ownership to the event of inheritance, would probably be more expensive regarding the total interest expense, and we could not use any other loan burdens (in case of a broken heating system, etc.) alongside the private loan.

The appraisal is still pending; due to the historic preservation status, the bank would commission an expert. However, I do not know if this is generally handled this way by all credit institutions?

We are, of course, still open for hints and tips, thank you very much for reading.