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

Please correct me if I am wrong, but as far as I know, forward loans are only available for follow-up financing and not for new financing. That means you cannot conclude a forward loan.

"At the end of the agreed fixed interest period or at the latest after ten years, however, you can easily refinance with another bank."

That would mean that if you secure interest rates for 20 or 25 years, you can still switch after 10 years if the interest rate should be lower again?

That is correct. You can also terminate the loan after 10 years with a notice period of 6 months even if the fixed interest period is longer than 10 years. That means you could refinance after 10.5 years if the interest rates are lower. That is always the problem with looking into a crystal ball. No one can tell you what will happen in 10 years. The advantage of a 20 or 25 year fixed interest period is that you have secure interest rates for a long period, but you "pay" for this security with an interest rate surcharge. If the interest rate falls, you might be annoyed in 10 years because you paid more in total than would actually have been necessary and you finish paying off later than if you had chosen a shorter fixed interest period from the start; if it rises, you may be pleased. Be that as it may, it is always a personal decision based on your need for security and your risk tolerance.

Please correct me if I’m wrong, but as far as I know, forward loans are only available for follow-up financing and not for new financing. That means you cannot take out a forward loan.

That’s correct. Even with an interest period longer than 10 years, you can terminate the loan after 10 years with a notice period of 6 months. That means you could refinance after 10.5 years if interest rates are lower.
That’s always the problem when looking into the crystal ball. No one can tell you what will happen in 10 years. The advantage of a 20 or 25-year fixed interest period is that you have secure interest rates for a long time, but you "pay" for that security with an interest premium. If interest rates go down, you might regret in 10 years paying more in total than you actually would have needed to and finishing repayment later than if you had originally chosen a shorter fixed interest period; if they rise, you might be happy. Be that as it may, it is always a personal decision depending on your need for security and your risk tolerance.

Alright, now I reread it. It’s like a follow-up financing. Hmm… then it falls through in that respect. ops:

My problem in the current case is actually that I will most likely acquire a plot of land in about a year at the latest, since good locations are rather rare here and I am already on waiting lists for two. So it actually starts for me soon but the construction start should only be in 02-03/2018. I could probably buy the plot (about 70,000 Euros) from equity.
That’s why the question came up whether one could somehow secure the currently very good interest rate for the actual construction project or even should?

Ah – OK. I wasn’t aware of that.

Even though the question didn’t go in this direction and a bank will not consider it now (before marriage and children), keep in mind a possible future reduction of income (e.g. parental leave, etc.) and a future increase in costs (the little rascal also needs to eat – uh and get rid of that as well).

Regarding the two longer-running home savings contracts, it depends on when they become ready for allocation and what the potential loan interest rates are.
If the home savings contracts are ready for allocation, you might be able to withdraw the balance and increase your equity (or reduce the loan amount). If the loan interest rates are acceptable, you could also take out the loan. However, most likely the current conditions will be better than the loan conditions of the home savings contracts.
If you still have enough monthly liquidity despite the house financing, a home savings contract loan with higher interest rates might still make sense. Since the repayment rate of a home savings contract loan is relatively high and otherwise very flexible with regard to special repayments, the home savings contract loan could be repaid relatively quickly and give you some breathing room. However, as a homeowner you usually do not have tons of free monthly liquidity, so this issue usually resolves itself.

It always depends on your fixed interest period.
The KfW has one of 10 years. That might fit.
The question arises, however, with a loan with a fixed interest period of e.g. 20 years, how much sense it makes to still use a home savings contract after 20 years or whether it might be better to use the monthly savings amounts for the home savings contract directly toward repayment and be done after 20 years.

On the topic of being debt-free in old age:
Yes, it is desirable and also from my point of view worth striving for.

A friend of mine once raised an argument that is hard to dismiss.
Meaning: Others at age 65 pay over 1,000 Euros in rent for their apartment every month and have the "same" pension.
Why should I then be bothered to put an additional 300 or 400 Euros toward an existing (no longer large) residual loan?
Personally, however, I also prefer to be debt-free in old age.

As for the income, I am quite aware of that. As far as I have understood, financing is usually calculated based on only one person and I have done that in my calculations so far. Currently, I was told that you can expect a monthly burden of about 800-900 Euros based on my personal income and can manage that.

Regarding the two home savings contracts, these are already ready for allocation and could currently be drawn. 99% of the time they will be used, along with other equity, for purchasing the plot of land. The loan interest rates here are still reasonable. They are not old hits with 4-6% loan interest but lie at 3%. For these loans, the repayment period is very short. If these loans from the home savings contracts are used for the land purchase, they are planned to be repaid by the start of construction in 2018 to free up breathing room again for the actual financing. The larger 50,000 Euro home saver with a very low loan interest rate would then still be left.

It is also usually said that you shouldn’t keep a lot of money aside but have a small safety cushion for things like car repairs or similar, and the rest should be included in the financing, as this usually lowers the interest rate again and otherwise you rather lose money than save it.

I don’t know if I maybe make too many thoughts already and should just wait, but oddly enough I’m someone who tries to inform themselves beforehand and maybe make the best out of it, plan it and steer everything in the right direction.

That is always a question of personal attitude as well.
I know there are some who think that way, also here in the forum. And that is totally legitimate.
Personally, however, I am more of an advocate of being debt-free in old age. What do I know what will happen in 30 years? Will we get a pension and if so, how much? With a debt-free house and ideally some additional savings, I have one less problem if things get tough.

Yes, I see it exactly the same. I would now also say I’m not getting any younger if the house starts in 3 years and someday you want to be done with the debt repayment.

My problem in the current case is actually that I will acquire a plot of land at the latest in about 1 year, since good spots are rather rare here and I am already registered for 2. So it’s actually already starting for me, but construction should only begin in 02-03/2018. I could probably buy the plot (around 70,000 euros) with equity.
That’s why the question came up for me whether it’s somehow possible or even advisable to lock in the currently very good interest rate for the actual building project?

My personal opinion: The cheapest option would be, if possible, to pay for the plot with equity. That would then be counted as equity in the later building financing, of course. Taking out building financing now for the entire project (and thus securing the interest) doesn’t make sense, because first of all, you don’t yet know how much the building project will cost you and you would end up paying silly amounts in commitment interest.

Regarding income, I am quite aware of that. As far as I have heard, financing is usually calculated for only one person and that’s how I have done my calculations so far. Currently, I was told that with a personal income of about 800-900 euros, one has to reckon with a monthly burden or can manage that.

I think that’s good and, of course, it’s the “luxury option”. Few can count on only one income.

One usually also says that you shouldn’t put too much money aside, but have a small safety buffer for e.g. car repairs or similar, and include the rest in the financing, since this usually lowers the interest again and otherwise you rather waste money than save it or

In principle, you are certainly right. But this is also, in a way, a personal decision. I prefer to have a little more savings than too little, even if in the end I pay somewhat more on the overall financing than others.

I don’t know if I’m maybe thinking too much about it already and should just wait, but weirdly I tend to be someone who tries to inform himself beforehand and maybe do the best, plan it and steer everything in the right direction.

For now, I would just wait. Wait and see how things develop with the plots and the planned house construction. You have 3 building savings contracts, that’s more than enough for now. With the current interest rates, it also makes no sense to take out another one.

Yes, I see it exactly that way. I would now also claim not to be the youngest anymore if it starts with the house in 3 years and at some point you want to be done with the debt repayment.

At 33 you’re still young, especially much younger than many other home builders.

That is always a matter of personal attitude as well.
I know there are some who think that way, also here in the forum. And that is completely legitimate.
Personally, however, I am more of a proponent of being debt-free in old age. What do I know about what will happen in 30 years? Will we get a pension and if so, how much? With a debt-free house and preferably some additional savings, I have one less problem if push comes to shove.

I completely agree with you.
However, sometimes one is a bit "blind" to the obvious and does not look beyond the horizon. For example, I had always focused on full repayment. Option 2 never even occurred to me – only when a friend pointed it out to me.
That idea of having to pay off a small residual loan in the "worst case" and thus still having a (relatively) small installment does not appeal to me either. But the argument that someone who continues to rent in old age still has the full financial burden (most likely even more than today with rising rents) gives me peace of mind, because in the "worst case" I am still clearly better off.

I don’t know if maybe I am overthinking it and should just wait, but strangely enough, I am more the kind of person who tries to inform themselves beforehand and maybe do their best to plan it and steer everything in the right direction.

The trait of planning ahead and thinking things through will save you from mistakes in the future. Informing yourself and planning, yes – but don’t get unnecessarily worked up.
Just look at everything with a clear head and soberly. Especially when later it comes to how far you want and can make compromises.

My personal opinion: The cheapest option would be, if possible, to pay for the plot of land from equity. This would then, of course, also be considered equity in the later construction financing. Taking out a construction loan for the entire construction project now (and thus locking in the interest rate) makes no sense, because first of all, you don’t yet know what the construction will cost you, and you would end up paying foolishly high availability interest.

I like that and it is naturally the "luxury option." Only a few can count on just one income.

In principle, you’re certainly right. But that is also a personal decision in a way. I prefer to have a little more put aside than too little, even if in the end, looking at the total financing, I pay a bit more than others.

I would currently just wait. Wait and see how things develop with the plots of land and the planned house construction. You have 3 building savings contracts, which is more than enough for now. With the current interest rates, it doesn’t make sense to take out another one.

At 33 you are still young , especially much younger than many other house builders.

I can only fully agree with you on all points.
The idea of using equity to invest in the plot of land was, well, planned that way because I also think that this would mean the first important step is already taken and the price per square meter isn’t getting cheaper either. I think when the time comes, it will show what money is still left on the side or how one handles it. As for my age, well, there are many who are younger too, but as you said, certainly many who are older as well.

I completely agree with you.
However, sometimes one is a bit "blind" to the obvious and doesn’t look beyond the edge of the plate. For example, I had always focused on a full repayment. Variant 2 didn’t even come to my mind — only when a friend showed it to me.
The thought that in the "worst case" I would still have a small residual loan to repay and thus still have a (relatively) small installment doesn’t really appeal to me either. But the argument that someone who continues to rent in old age will still have the full burden (most likely even higher than today due to rising rents) gives me the ability to sleep peacefully because in the "worst case" I’m still significantly better off.

The quality of planning ahead and thinking things through saves you from mistakes in the future. Informing yourself and planning — yes — but not getting unnecessarily worked up.
Just look at everything with a cool head and soberly. Especially later, when it comes to how much compromise one wants and can make.

As far as mistakes and planning for the future go, some people think I’m crazy. Even my girlfriend now, one year after we started dealing with it, often says, "oh, it’s all still so far away." But when the time comes, I think you’re glad about what you’ve already done or that you set the course so early.

Still, it’s all quite intense, and especially the large amounts of money sometimes cause headaches even now. But then you think again that there are others who have managed this.

In the current status, I have only thought about the interest rates, whether and how one could or should secure them, and above all, what options there are and what people say who may have been or are in the same situation.

I definitely know that I’m in the right place here, and that makes me very happy!!

[A QUOTE="f-pNo, post: 77842, member: 17446"]A friend of mine once brought up an argument that cannot be dismissed. In essence: Others will then pay over 1,000 euros in rent for their apartment every month at the age of 65 and have the "same" pension. So why should I mind adding, for example, another 300 or 400 euros for an existing (no longer high) remaining loan. [/QUOTE]One should consider the entire assets. Homeowners usually have (almost) everything tied up in the house. The tenant hopefully has other assets. In other words: Whether a remaining debt from the home purchase, still existing at retirement, burdens you largely depends on the other circumstances.

A few more words on that: As a rule, it is best to repay debts first before building up "free" assets (loan interest is always higher than secure [!] returns of alternative investments). Following this advice, one should automatically be debt-free several years before the planned retirement.