Construction financing without equity capital, but with other liabilities

First of all, I would like to thank everyone for their answers/contributions/advice.

As can be seen, several days have passed and the situation has changed somewhat.

I do not think a new topic would be useful, so I will ask my question regarding the new situation here.

My mother owns two properties.
The one we live in is to remain in possession.
The other property will be sold.
I would like to point out that it is my wish (merely my wish! Whether it would be feasible I cannot judge!) that my mother’s assets play no role in the further considerations.

To get the property we live in into shape, a loan of X euros is needed.
I want and am to be the borrower. The property, whose exact value of course still has to be determined, is to serve as collateral.

Would this be feasible at all, assuming the property had the value of X+?
The background of the question is: can a property that is not owned by the borrower serve as collateral?

Or would my income and liabilities here also be the “death sentence”?

A “merging” of liabilities and “mortgage” would not be possible and also not advisable, if I understood correctly?

Apart from financing, I have a very general question:

So far, I have not received uniform experiences from various “builders/renovators.”
Some can freely dispose of the money, others only receive partial payments and must always explain before each payment what they plan to do in the next phase or what they have achieved with the last payment before the next installment is paid.

I am grateful for any advice and any answers.
Only I would like to point out: I am not an expert in the financial sector. If I knew anything, I could answer my questions myself and would not have to bother you.

I wish you all a nice Sunday.

PS: I forgot to mention that when concluding a loan agreement, insurances such as, for example, term life insurance are of course taken out (in case that might be of any interest).

so:

1.) another property can very well be registered as collateral for the financing. if it does not belong to you, a guarantee would probably be needed. that should somehow be doable, best to talk to the bank. the prerequisite is of course that the owner of the property to be encumbered agrees to this and that it is probably also notarized.

2.) with your income and liabilities, almost any financing is currently your death sentence. we already discussed this topic.

3.) whether someone can freely dispose of their money or always has to prove every cent and also show progress depends on whether you finance with KfW or normally and of course also on the loan-to-value ratio. the bank has a strong interest in the fact that the money used also increases the value of the property. if you only finance €10,000 on a value of €50,000, the bank theoretically does not care much about what happens with the money. if you finance €80,000 for a house worth €50,000 + €30,000 renovation, it also wants to get the highest possible increase in value out of the money.

4.) a term life insurance is not necessarily required for house financing. if you finance the house alone and it is registered in the land register, the insurance is useless. it only pays out in the event of death and then the house simply belongs to the bank. (all heirs of course renounce the inheritance) if you naturally work with a guarantee, such insurance makes more sense, since the guarantor is then released from the matter. if the loan-to-value ratio is good, he will also get rid of the house roughly break-even even without the insurance. term life insurance is more for families or partnerships to secure the other person living in the house.

what you necessarily need for financing a property is building insurance.

You want to take out a loan for a house that does not belong to you?

No matter how good the family relations are DERZEIT and how unlikely it is HEUTE that you have a falling out with your family: the loan remains your responsibility, even if your mother and you are completely estranged and she evicts you from the property. Similarly, you have to continue servicing the loan if there is a new partner, this partner gets married, and eventually inherits the property alone. Sounds unlikely? But it happens again and again – people and life situations change over the course of 5, 10, or 20 years...

So if "im Besitz bleiben" means that the property continues to belong to your mother, your own protection towards your mother must also be a topic. Such things should be clarified while everything is still good and you believe you will never need them...

Thank you!

To what extent an additional financial burden would be deadly for me is another matter. Ultimately, only I can decide that alone.
Despite rent etc., I am currently still able to save at least €200 monthly.
My concern was merely the changed basis towards the bank, as there would be material collateral. Whether this would change the initial situation.

The argument that the bank wants to know that the loaned money is invested correctly is, of course, logical. I just didn’t understand the different procedures of the banks.
I would have to inquire about the amounts of the respective loans.

So, I am just gathering information here.
I will neither run off tomorrow nor the day after to finalize anything.
Family matters will, of course, be documented in writing and notarized, as siblings also play a role. I have obviously assumed that.

What kind of collateral the bank would require, I don’t know. The life insurance I mentioned should benefit my mother in such a way that she could pay off the granted loan in case of emergency.
Everything else would then be brought up by the bank.

As I said, these are currently just considerations.
In the coming days, I will meet with an experienced craftsman who wants to take a look at the property.
This would be sufficient for me as a rough assessment in advance.

Hello interested2,

if you want financing from the bank, then the monthly installment must be payable from some kind of regular income. Of course, paying off a loan using a life insurance policy is possible, but until the life insurance is paid out, at least the ongoing interest must be paid from the income.

In that case, your mother would also be the borrower, because she would pledge her life insurance to the bank.

I have another idea, but before I explain it, I have two questions first:

1. When you say "we," is it correct that you mean yourself and your mother, and therefore the other siblings do not live in the property to be retained?

2. How do you roughly estimate the value ratio of the two properties – are they worth about the same or is there a big difference?

Best regards
Dirk Grafe

I have read it again carefully.

You want to renovate your mother's house (is she the sole owner?) and for that, have the house transferred to you? During her lifetime, she can gift her property to whomever she wants, but she must live for another 10 years afterward so that siblings cannot still make you pay (when a lot of money is involved, family tends to stop being family...). Only the person listed in the land register of the property can take over the loan for the renovation (unless you have another property or similar as collateral for the loan). So if she remains the owner, only she can take out the loan. If she transfers the house to you, only you can take out the loan. The only exception would be, as mentioned, a guarantee.

I was only concerned about the changed basis regarding the bank, as material security would be available. Whether this would change the starting position.

Last year, the conditions changed, so that the loan-to-value ratio no longer plays such a big role, but rather the monthly income. It is easier to get a 250,000€ loan with zero equity and a household net income of 5,000€ than with 200,000€ equity and 1,400€ net for a 250,000€ loan, although the risk for the bank is zero with 200,000€ equity. The bank needs a reliable monthly source of income so that the loan does not fail from the start. Also, as mentioned, it does not matter how frugal you are since banks work with fixed amounts. Our "banker" already told you this 1-2 pages ago.