Experiences with income from self-employed individuals in financing?

Since we now have to make a decision because of a land option, we have tried to deal with the topic of financing more concretely in the last few days. I think we may have been a bit naïve so far, assuming that it shouldn't be a problem at all.

We had already once asked a friend from the industry completely non-bindingly a while ago what would generally be possible for us; but now we are no longer so sure. This is also based on reading the posts here :)

I would be happy to give you a few numbers, etc. – we would really appreciate an assessment from here before we go concretely to the bank. Maybe you also have a tip for the initial conversation about concrete financing.

We calculate the following costs for the house construction project:

Land including tax/notary: €65,000
House from developer including upscaling, floor, and painting work: €275,000
Additional construction costs: €40,000
Outdoor facilities including garage: €30,000
Buffer for all cases: €15,000

= €425,000

This is opposed by the following:

Equity: €150,000 (possibly a bit more...)
(We have a ready-to-allocate home savings contract that would enable us to purchase the land without having to enter into financing, i.e., simply with the amount we have saved...)
My husband’s net income: €2,200–2,600 (self-employed in a reputable industry :) )
My net income: €1,600 (part-time)
(+ €400 child benefit)

We have two children, no other liabilities to serve, we have 2 cars, no expensive hobbies, do not maintain a particularly cost-intensive lifestyle, we are both in our mid-30s and would of course like to be finished with the financing by around 60.

The question of a possible third child is not yet decided – but after a maximum of 18 months I would go back to work part-time at €1,600. Reserves to finance these 18 months after deducting parental allowance would be available. So we would not completely exhaust our equity, a small reserve for a possibly broken car, washing machine, possibly a third child would be available.

The children will become more expensive, that is clear to us. But on the other hand, I basically also plan to gradually increase my hours again.

My husband’s income will also tend to rise.

We are now also unsure because of contradictory information how the income of a self-employed person is evaluated. Of course, my husband does not have 100% certainty about income X, but on the other hand, he cannot be fired either.

What do you think? Is a loan of about €275,000 realistic, or are we building a dream castle?

Hello Mizit,

for self-employed individuals, banks check what was earned in the last 3-5 years and use that, including the industry, as a basis. It of course helps if you already have a bank as a business partner in the trade, as they can see what has been going on based on the movements of recent years.

However, you can also separate that if you do not want to become so dependent on one bank.

It can also quite well happen that banks assess your husband's industry differently, i.e., you could/should simply have this roughly evaluated by 3-4 banks, then you will have an idea of where things are headed.

Best regards Dirk Grafe

How long has your husband been self-employed? Your financial situation is somewhat different from some others here, as you are already in the situation of having children and managing with the part-time income.

Thank you all!

My husband has been self-employed for 6 years now, although of course in the first 2-3 years, due to building up the business, he did not earn €2600 net...

Hello, are the 2,200 - 2,600 relatively constant and coming in continuously, or do you also have the risk that a customer pays late or not at all? I find the income a bit tight for a self-employed person, who also has to cover all risks themselves, to start a construction financing.

Generally, I would say that with about €4000 it is already possible to finance €275,000, there are much tighter calculations than that. (I would make an exception for [Das Kindergeld], since children usually cost more than the amount of [Kindergeld].) However, as someone already wrote, I also find about €2400 net income as self-employed not very much given all the risk and the (time) effort involved, but you yourselves know that, especially if she already receives €1600 in part-time. At around 60 it might be difficult, but it should be possible until retirement (assuming mid-60s). The question of how banks assess self-employment can only be found out through discussions with the bank. Some will probably react very differently. However, with a proper equity capital of about 35%, some should approve the project. What does your husband do, if I may ask?