Construction financing | Is the procedure good? Your opinion and tips

Hello everyone,

First of all, I would like to briefly introduce myself, as I think that belongs to every forum. My name is Andreas, I am 30 years old and I come from the beautiful Middle Franconia near Nuremberg.

I came across the forum while searching for information about home ownership and, due to many interesting posts that I have already read in the past weeks and months, I have now finally registered.

My starting situation:
Since there are not many nice plots left in our town and those that are available are snapped up very quickly, I had two plots reserved at the end of last year. It is possible that the plots will be available for final purchase by the end of 2015 / beginning of 2016. Everyone has their own plans for the coming years, and at the moment building the house is not imminent. The current plan is, depending on plot purchase, 2017 / 2018. Nevertheless, you of course align your actions so that things can finally start in 2-3 years.

A house including the plot is planned for about 350,000 euros. Equity will be around 70,000-80,000 euros, with which I want to buy the plot in advance.
Questions about construction financing:
Since the plans have now shifted towards building a house, albeit perhaps somewhat early for some, the question of financing naturally arises. I have already gathered a lot of information from the internet myself. But you also repeatedly read different opinions there.

Wohn- / Bauriester à I have decided to implement construction financing without Wohn-Bauriester, even though during another visit I was assured at the bank that it is no longer possible without it. There they make the conditions and state subsidies sound so appealing that it is certainly very difficult to say NO without informing yourself beforehand. Due to the residential promotion account and the repayment of accrued interest in retirement age, this is definitely not an option for me.
- However, I would be happy to be corrected by you if I am really seeing this wrong

Building savings contract --> Since I am already of middle age, building savings contracts are of course available. Based on the planning, I took out another building savings contract (50,000 €) in 2014 with a low loan interest rate and good monthly repayment. In addition, two other building savings contracts exist from me and my partner with about (50,000 €).
- These should be included in the construction financing.

Bayern Labo --> Through the Bavarian interest subsidy program, depending on family status (married, with 1 or 2 children, etc.), a discounted loan can be obtained. This would also apply to us and would be factored in after income verification.

KFW Loan --> Furthermore, KfW subsidies such as KFW 153 / KFW 124 would also play a role.

Remaining loan --> This would then be financed through the local bank or the best additional financing offer from the banks.

How do you see the current plan and my approach in this case? Unfortunately, I have no experience in such matters so far.

Another question:
Since I am somewhat keen on politics and market news, one naturally follows the current developments of European interest rate policy with goodwill and also criticism. Due to the latest developments of the ECB and bond purchases until 2016 worth 1.14 trillion euros, no one can really say how the markets and interest rates will develop further. The trend for interest rates is likely a slight increase of 0.3% in 2015. For 2016 it is expected to be 0.8 percentage points above the current level, according to what one reads. Thus, I naturally see the currently good construction loan interest rates of the banks slipping away.

Would you currently do anything because of the interest rate development to secure the low rates? Perhaps another building savings contract or are there other possibilities? In the example above, if I were to build today, I would have kept a building savings contract in order, for example, after the term of an interest fixation for 10 / 15 years, to repay this loan with still favorable conditions from the building savings contract in case of rising interest rates or to redeem it. But that unfortunately does not help me with the plan for 2-3 years.

I hope you can understand my approach or make something out of my whole confusion. I would of course be very thankful for information, tips and further opinions. Because currently, I can certainly still steer everything somewhat in the right direction.

Regards, Andreas

Good evening everyone,

I hope the topics mentioned above are not too much or too confusing. If they are, I will gladly formulate the topics again in individual threads.

Regards and many thanks to you in advance

Just today, the KFW interest rates have dropped by 0.25% - and the "experts" rather predict that the interest rate will remain low. How you come to 0.3% this year and 0.8% next year is somewhat unclear to me - no one can predict that reliably. Five years ago, everyone was already saying "It will never be cheaper again" - and the same was said years before that. Just that - keeping calm has never done any harm.

Hello,

that is too long a period for anyone to reliably predict the interest rate development for you. As for the [Bausparer], I am not a fan of it. Others should judge that.

On the topic of Riester, I have the same opinion as you, better to leave it alone.

On the topic of interest rate development: Predictions are always difficult, especially when they concern the future!

Good morning everyone and thanks in advance for the first responses.

Just today the KFW interest rates have dropped by 0.25% – and the "experts" rather predict that the interest rate will stay low.

How you arrive at 0.3% this year and 0.8% next year is a bit unclear to me – no one can seriously predict that.

Five years ago everyone already said "It will never be cheaper again" – and the same years before that.

Just that – keeping calm has never hurt.

I only read various articles on the internet because of the ECB decision the day before yesterday and took the values from there. But, for example, nowhere did it say that the KFW interest rates had dropped. Thanks already in advance for this info. Yes, of course, you think, you can’t change it anyway, so basically all that remains is to wait and drink tea. I was just asking myself whether one could possibly prepare something for planning if you know when it will finally start.

Hello,

that is too long a period for anyone to seriously predict the interest rate development for you. Regarding the building savings contract, I’m not a fan of it. Others should judge that.

May I ask how you would do it or maybe have already done it? Actually, you only ever read about Riester and building savings contracts or loans from the bank.

Regarding Riester I share the same opinion as you, better leave it.

Regarding the interest rate development: Predictions are always difficult, especially when they concern the future!

As described above, until now I have only been at a local bank for other topics. They insisted on that. Quote: A solid financing consisting of building savings contract, Bau-Riester and bank loan is the very best, etc. etc. Since I am still very new to the construction topic, of course you ask yourself what you can do or what is ultimately best for yourself.

Currently I just thought about how one could secure the possibly very good interest rate, e.g. for the next 2-3 years, and I am currently missing ideas on that. Especially considering that around the end of the year one might want to buy a plot of land worth 60-70k euros in advance. I thought maybe buy this via a loan from the bank with a low interest rate and keep the own funds aside for up to 3 years. But that’s nonsense, and above all, whether you would get a loan for that is another question.

It’s all not so simple.