Construction financing: What options do we have?

Hello Bernd,

thank you for your assessment.

I think we need to reconsider our budget. Although a fitted kitchen is available and the garage as well as the exterior facilities are not planned immediately, I just don’t want to risk overextending ourselves. Basically, I assume that we are also entitled to funding. A Riester annuity loan would also be an option for us, but I don’t know any lender that offers that!

The plot of land we have in mind costs around €46,500 for 380 sqm. It is a long and narrow plot, which we actually find very appealing. The alternative would be to buy the entire plot and build two semi-detached houses together with my brother. Whether that changes anything regarding the expenses per homebuilder, I cannot assess as a layman. What do you experts say?

Regarding the financing:
As mentioned: 4-person household, salary €2,900 monthly, €364 child benefit, €50,000 equity with an increasing tendency, as well as the willingness to contribute quite a bit of "mild" personal effort.

Question for the finance experts:
Based on the benchmarks used by lenders: what amount of monthly repayment rate is realistic and feasible given our financial situation?

Hello Karla,

In the sense of the classic prefab house.

I hope you do not choose this option because you assume that a prefab house is built faster, because that is – measured over the entire construction period – a misconception; they are also not cheaper if they are properly produced and fitted out. Bernd will surely answer any further questions you may have.

An acquaintance built a prefab solid house, bought the shell, and contracted out all trades. In the end, it was – with all due respect – damn expensive. Much more expensive than the turnkey variant would have been.

That is often the plain reality, unfortunately people do not believe it :confused:

So, honest words: Biomass energy doesn’t pay off, it takes too long for such a thing to amortize – therefore the most sensible option would still be the gas connection?

Yes and no – yes, it “doesn’t pay off,” at least not significantly, and no, a gas connection is not necessarily the final answer; it depends :) It is known that the existing gas reserves are running low and that still untapped fields require considerable investment to exploit; ergo gas will become more expensive in the medium term. However, for the lifespan of a gas condensing boiler it is currently still irrelevant. On the other hand, there are cost-effective entry-level models for heat pumps that can already free you from gas now; a mandatory prerequisite for any renewable technology is, however, underfloor heating. Personally, I recommend to those still undecided or with a tight budget to design the building envelope to Kfw 70 standard, to install underfloor heating and a gas condensing boiler, and then calmly wait to see how upcoming technologies develop; the catch is the gas connection, which varies in cost depending on the municipality, and I would completely avoid district heating. For those a bit more adventurous, I offer an air/water heat pump from a Japanese supplier (produced in Germany); even last winter the consumption values of €600-800/depending on number of people/showering habits were respectable; incidentally, heating will have to be done with electricity in the future anyway and btw – no heating system works without electricity ;) The advantage: you save the gas connection, and in a new building the surcharge compared to a conventional gas condensing boiler is indeed in the four-digit range, but still cheaper than a geothermal heat pump; to be fair, the saved gas connection must also be taken into account. Another advantage: if your piggy bank is refilled a bit, photovoltaic can be retrofitted and voilà, the house runs autonomously, because now self-consumption is allowed. In the future small wind turbines will also become interesting, also an alternative, provided the Greens do not come up with an argument against them again => see discussion about the existing large wind turbines :o It is and remains a personal decision – almost a gut decision – which system will be used.

Kind regards

Hello Karla,

with your budget you could definitely manage. Our little house costs 160,000.00. KFW 70 house, 111 sqm, with all the bells and whistles you need. Without a basement. Land 45,000.00, incidental costs 15,000.00, total 220,000.00 in NRW. We bought the land ourselves and have it built by the architect and his construction company. If you go through a property developer who sells you the land along with the house, real estate transfer tax is also due on the house. That is also a few thousand. Price and quality were confirmed to me by colleagues who also built with him. However, he probably will never build the house again at that price. Raw material prices are rising as well as interest rates. So we were probably a bit lucky. The whole thing is at a fixed price.
I have already expressed myself here in the forum about financing more than once. It makes sense in any case to give as much of your debt as possible to the KFW. (not every bank likes that) 50,000.00 for KFW70 and 30% of construction costs are possible under the KFW124 program. The interest rates there are very good, sometimes even offered cheaper by direct banks. An independent advisor really makes sense. The banks only try to sell you nonsense. Even though I work at a bank myself, they tried it on me too. If your little house is intended as retirement provision. google a Riester annuity loan. It is hardly offered because it is more beneficial to you than to the bank. (free repayment through grants and repayments are special expenses). In your case, I would not let anyone talk you into a (Riester) building savings contract. It costs a commission, you would have to finance it expensively in the interim, your savings contributions are minimally interest-bearing and eaten up by inflation, and when the thing is finally ready for allocation, you have to make high repayment installments.
If you want long-term security, interest rate lock-ins of up to 30 years are also possible. You will notice it then in the interest rate. Security costs money!

Regards Ille1975

Thank you, construction expert, thank you Ille1975,

for your opinions.

I am now quite uncertain. Whether building is the right thing for us? Or should we rather look for a house from the existing stock and renovate/modernize it within our means, even if that means foregoing energy-saving insulation, newer windows, and the desired underfloor heating.

I had actually assumed that it would be more economical to invest a little more money in a low-incidental-cost new build than to spend less money on an existing building, where I expect higher incidental costs.

This probably seems very naive to the experts here, but I was basically convinced that, with my income level, my secure job, and the equity, I had good opportunities to take the adventure of building new.

Honestly: what would you advise us?!

That also depends on whether there is existing property that interests you. For example, two years ago we saw a house from 2006 for 270k, we were in love but it was too expensive for us. Then there was no proper inventory, but suddenly the plot in the desired location. Now we are at 400k. In hindsight, I wish I had bought the other one back then. So first look, is the dream plot available, or the dream used house? Then you can weigh it up. About the new build: You automatically want so many extras that it becomes expensive, and partly also confusing. Then you tell yourself, I’m only building once, retrofitting will be too expensive, so build it in directly... it adds up. And don’t forget costs like the garden, with existing properties all that is already there. Flowers, lawn, trees, stones, paths, terrace, and seating possibly swing, garden shed or something... you can spend money just on that alone. You can leave it out at first, but who wants a house without a usable garden? In my opinion, it comes down to planning more money for a new build. No one can make the decision for you. Get a financing offer and sleep on it!

Hello Karla,

a new build makes more sense compared to a used property. On the one hand, you have lower additional costs, KFW70 funding, and you can initially keep your maintenance reserves not neglected, but still lower. With a used property, you should form maintenance reserves from the start in addition to the interest and repayment rates. You never really know what you have bought. Are any defects covered up, is the energy certificate, if it even exists, somewhat tampered with.
For 250,000.00 (200,000.00 desired loan + 50,000 equity), you should be able to have a nice little house built.
As a civil servant, you get a good rating from banks, your income is secure until retirement. Much more important than financing 10,000.00 more or less is the choice of the construction company. Get information from Creditreform to see if they are really solvent. Do acquaintances have experience with construction companies? Building forums are quite nice, but what prevents a construction company from pretending to be a private person.
Familiarize yourself with the financing. Common are 10 or 15 years fixed interest on an annuity loan. Security costs money. maybe 10 years will do as well. Use a repayment calculator. You can significantly reduce the residual debt after 10 years through changes in repayment and special repayments. What income can your partner contribute as well. The more you familiarize yourself with everything and the more you understand, the safer you will be. Whatever happens, you always have to cover interest rate +1% repayment. If with your salary you also cover the house additional costs and keep your family fed, you are at your pain threshold. Then consider your partner’s income as a special repayment, reserve, bigger vacation or whatever.
Take your time and familiarize yourselves with everything. Don’t leave all decisions to house sellers and bank advisors. You yourselves might have to deal with it over the next few years if necessary.

Best regards
Ille1975