Finance another house...

Hello everyone,

a brief background: we bought a partially renovated house about 3 1/2 years ago and at that time planned to complete the renovation. Since we are both very busy with work, unfortunately, that didn’t work out at all. There is basically no progress to report, the work-related stress has increased and apart from garden maintenance and upkeep, not much is happening. On top of that, there are some things that bother us and simply cannot be realized there (parking spaces, hobby basement, etc.).
In short, we saw a building plot rather by chance that appeals to us, and at some point the idea of building turned from a pipe dream into a serious consideration.

Now we still have the old house hanging over us, the purchase price back then was 340k€ plus additional costs and the financing amount was 290k€. I don’t have the exact outstanding amount at hand right now, we have made special repayments of around 15k€ so far and pay a monthly installment of 1350€. Our current equity situation is not looking very good.
We still have a building savings contract ready for allocation with 25k (10k paid in, 15k loan amount) and about 10k in cash.

The plot would cost 150k and the house around 300-400k; we haven’t looked into it in detail yet. We could only sell the old house once the new one is finished and whether someone would buy it that quickly is another matter.

We have a net household income of 6350€ and the cost of the installment is 1350€, apart from that there are no other loans.

What do you think, would we still be able to get a loan of that size?
I’m not sure at the moment, credit granting has apparently become significantly more difficult and we hardly have any equity as well as still having the other loan hanging over us.

I will make an appointment at the bank soon, but first I need to apply for vacation and at the moment I first need an assessment from people who are not emotionally involved.

Thanks in advance for that.

Hello Loco,

in my opinion, in this constellation, there is no way around a detailed conversation with the financing bank.

In your case, there are numerous unknown variables that make a serious assessment appear grossly negligent.

Just as a thought starter:

- What happens with the existing loan? Repay with prepayment penalty or take over?

- Tax implications from the sale of the previous property?

- Previous property not sellable at the desired price?

- Can the double burden (old loan & new loan) be borne?

Basically, you are not the first to face such a situation.

For example, the new loans can be structured so that only interest is incurred during the construction phase – repayment start only after moving in.

You can also sell the existing property now – simply agree in the notary contract on a later transfer of possession and capital flow, then you would have this worry "off your plate" already...

With your household income, the financing amount should not be a problem – the "transition period" could, however, be "stressful" in the worst case. However, I wonder what you have done so far with the EUR 5,000.00 that should still be left after financing...

Therefore, once again, my advice:

Talk to your bank, put all cards openly on the table, and also describe your concerns – most banks prefer somewhat skeptical clients who also see the risks clearly rather than professional optimists who see no downsides...

Regards,

Dirk

The first question I ask myself with €6350 and a €1350 installment is what you are doing with an amazing €5000 net?? That is almost no equity. No renovation was done either. Then there is the problem of selling the house. So you would have to bear the current financing as well as the new project during the construction phase (interest is due here). Of course, you could apply for a mortgage deed switch and exchange the properties. But the house sale is up in the air.

Alternatively, you would have to pay a prepayment penalty upon sale and redemption.

Another problem I see is a loan of 290k and for the new build? 150 +400= 550k - that is double the volume. You have only made special repayments of 15k in 3.5 years... that is a joke given your income.

Sorry for the harsh words but you are heading into something that will burn you out.

So regarding the income, of course we still live, clothing, groceries, two cars, each driving about 80km per day. Last year in September we got married, then there was briefly 20k gone. In between, each of us had a new used car for about 8k. We have the net income now, when we started the financing, we had quite a bit less. Currently, depending on special expenses, we have about 1500-3000€ left per month. Why haven’t we saved that much money, why should I? So far no house purchase was planned, everyone buys a notebook for about 2k from time to time or spends a few hundred here and there. I also have 10k in a savings account, but that is a reserve, it will not be used for a house purchase.

So regarding the income, of course we also have living expenses, clothing, food, two cars, each driving about 80km per day. Last September we got married, so there was briefly 20k gone. In between, each of us got a new used car for about 8k. Our net income now is higher than when we started the financing; back then it was considerably less.

Currently, depending on special expenses, we have about 1500-3000€ left per month. Why haven’t we saved that much money, why should I? So far, no house purchase was planned; everyone buys themselves a laptop for around 2k or spends a few hundred here or there. I also still have 10k in a savings account, but that is a reserve and won’t be used for a house purchase.

OK, so far it has worked out to buy a laptop for 2k, a nice trip to the Maldives. What happens if you have to finance 500k and then children arrive (net income even less due to possible part-time work)?

Are you ready to consume less, can you handle the expenses and the reduced net income? I would think twice about starting a bigger project. The banker in me says yes, you can manage it; the average Joe says don’t overestimate yourselves.

From my point of view, it would be important to know whether the existing house can be sold well at a "reasonable" price, or whether you paid a "lover's price" back then and are now getting significantly less for it. If it is reasonably certain that you can cover the existing debts at least with the sale, then that will probably work. FYI, we also had an apartment that we still had to sell. But we did that before the construction started and then wrote in the notary contract that we could live there rent-free for about 1 year; if it took longer, we would have had to pay rent. In the notary contract, you can basically write anything, as long as the buyer accepts it...