Construction Financing - Financing Models for Unmarried Couples

Hello,

I am looking for tips and pitfalls regarding construction financing by unmarried couples who also bring very unequal financial circumstances into the project.

The following situation can be assumed:

[*
Partner 1
[LIST]
[*]has received a property with an existing building worth approx. €550k from his family
[*]has approx. €90k available savings
[*]owes €115k to a relative, whom he has to pay off (Partner 1 alone is registered in the land register for this)


[*]Partner 2


[*]has approx. €10k available savings



[*]The renovation project costs approx. €200k; depending on the financing offer, up to €300k may be borrowed (for the renovation and to settle the family debt)
[*]Both partners want to jointly take on the repayment of the financing portion for the renovation; Partner 1 pays a larger share of the installment to pay off the family member

I am looking for a model on how the partners can secure their shares in the project. What should NOT happen in case of a separation:

[*]Partner 1 is obligated due to civil law/construction code constructs unknown to him to pay Partner 2 half of the joint loan amount or even half the land value
[*]Partner 2 loses the portion of installments he has paid
[*]The financing is "terminated" because Partner 2 wants out/Partner 1 is not allowed to continue the financing under the same conditions even though he could pay the installment

Are there "standardized" contracts for this, or is the way to a notary unavoidable? (Well-invested money in a serious case, I know) Is joint financing even advisable here? It is desired, because Partner 2 does not want to feel like "living with Partner 1," but wants to co-own something of their own.

Thank you very much for your input!

I think it depends on whether you will be getting married in the foreseeable future. We have a similar situation and decided to have the financing completely in Partner 1's name. Otherwise, you would have spent several thousand euros on notary costs, tax advisors, lawyers, etc. Once you are married, it can be resolved much more easily. For the "transition period" it was too much effort for us; we'll sort it out when the time comes.

If you don't want to get married, of course, all of that can be arranged through contracts. Since Partner 2 is not contributing any equity, it won't really change the financing conditions anyway, especially since the property is there as security. At most, it could help if Partner 2 earns better.

This kind of arrangement is not standard, and from my point of view, you can't avoid using a lawyer/notary. We were suggested to transfer the house and land to a GbR, in which Partner 2 gradually acquires shares. But we didn't look into it further in detail.

Thank you for your assessment. Why does it become less complicated with marriage? I assume it's because a prenuptial agreement is mandatory in this arrangement anyway?

We have a similar situation and decided to have the financing run entirely through Partner 1. Otherwise, we would have wasted several thousand euros on notary fees, tax advisors, lawyers, etc.

Financing does not cost any notary fees, and a land register change also does not cost several thousand.

The house belongs to the person who is registered in the land register, regardless of who has repaid the loan. If married, the other person has a claim to the accrual equalization and thus a share of the installments paid. The question is whether he can obtain the financing alone or if she must sign along. That means point 1 can only occur if both are registered in the land register without any further agreements. Point 2 can occur if not married. Point 3 can occur if the bank is not satisfied with one borrower.

Thanks for your assessment. Why does it become easier with marriage? I assume it's because in that situation a prenuptial agreement is mandatory anyway?

Exactly, because you will probably make the corresponding contracts anyway, and because there are no tax issues when transferring owner-occupied residential property. That makes it easier from our point of view. As I said, we haven't dealt with it in depth.

A financing doesn't cost notary fees and a land register change doesn't cost several thousand either

No, but if you want to set everything up so that it is tax-compliant, adequately considers possible inheritance, separation risks, etc., a lawyer won't draft it in one afternoon. And they don't work for free either. It’s certainly all possible, but it wasn't worth the stress to us. There are plenty of other topics to spend your time on when building a house ;-)