Construction Financing Options - Experiences / Recommendations

Good morning,

I am new here and would like to ask a question to the financing experts. We are not quite sure how to approach the financing. It must be said that we have already been to a few banks and received the green light for one of our options. That would be the option with a high loan and high installment. Now some of you might be wondering what bothers us about that? It is the immense interest costs over the term compared to the second option. This situation arises from our personal circumstances, which are that my husband and I both work as employees but have also owned a company for a while that is profitable, although we are now considering selling it. If we leave everything as it is, we can easily afford the high installments with the high financing requirement. However, we would also have significant interest costs, which we wouldn’t necessarily have to pay if the financing requirement were smaller per se. On the other hand, if we dissolve the company and withdraw the value held so far without being able to sell it profitably, we would have a smaller loan. But I am sure that the bank would raise questions then because I want to remain on parental leave and the regular income from the company would no longer be there. It would of course be sufficient to easily service the installments of the smaller loan. On the other hand, I think that in the latter option we would contribute more than 60%!! equity. Isn’t that enough security for a bank? But now to our project and the options.

Option 1:

- €840,000 total budget
- of which a already paid plot of land worth €230,000 can be contributed
- in addition, €50,000 equity will flow at the beginning of the financing
- results in a financing requirement of €560,000 --> installments from the offers of the house banks were at 20 years fixed interest at 1.9% interest and €2,200 installment per month

Option 2:

- €840,000 total budget
- of which a already paid plot of land worth €230,000 can be contributed
- in addition, €360,000 will flow as additional equity at the beginning of the financing
- thus, a financing requirement of €250,000 --> for this we have not yet requested any terms

Hello EliKarl,
how is anyone supposed to answer that seriously for you?
You would have to decide for yourselves whether you want to sell your own company or not.
No one can answer for you:
- How much do you care about the company?
- How profitable is the company? Do you get more salary/profit out of it than you would have to pay in additional interest?
- How will the company develop over the next few years?
- And so on...

I actually did not want to ask whether we should sell or liquidate. Rather the question is: What if I apply for the aforementioned project with 60% equity, but then temporarily only have a salary from employment, which is quite sufficient from our perspective to cover our living expenses and the credit. Does the bank then say, no, I can’t do that? Or is there a basis because of the 60% equity?

With 60% equity, I cannot imagine that a bank would refuse. But ultimately, only the banks can answer that. Is the property already fully paid off? Then there should definitely be enough security.

Variant 1:

- €840,000 total budget
- of which a previously paid plot of land worth €230,000 can be contributed
- additionally, €50,000 equity capital flows in at the beginning of the financing
- results in a financing requirement of €560,000 --> rate from the offers of the house banks was 1.9% interest with a 20-year fixed interest period and €2,200 rate per month

An acquaintance has similar figures and closed at 1.1% a few days ago. I find the 1.9% extremely high, considering that you bring in about 1/3 as equity... There are definitely better offers on the market.

Regardless of the company, etc., I also do not find the conditions good. You should definitely follow up on that again, then the interest burden will also improve significantly.