Finance land + build a house in 2-3 years?

Hello everyone,

we have just received a tip from our municipality that you should already have the financing secured before deciding on a plot of land (VERY high demand).

Therefore, I want to briefly outline our current situation:

- Home savings contract €6k (total sum €100k; allocation from around €30k; payment = €400/month)
- Condominium (value approx. €120k; remaining debt approx. €50k; mortgage on the condominium; currently rented for €500 cold/month)
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I would now assume about €75k that we have "saved" so far. However, since the majority is tied up in the apartment, the money cannot just be quickly withdrawn from the bank.

We plan to build a house in about 3 years. Currently, we still have the following expenses that will disappear/be paid off in 3 years:
- Car loan (€340)
- Repayment of home savings contract (€320)
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€660 / month

Since the demand for plots of land is currently very high (Regensburg area, Bavaria), we are considering financing the plot in advance. The advantage would be that you already have a plot of land in 2-3 years and then only have to take care of building the house (with full flexibility regarding scheduling).

My question now is whether it makes more sense to take out a large loan for the plot + house (we are certainly talking about around €350-400k) or to finance the plot first and then the house.

- Will the bank do that...?
- We would be reluctant to sell the apartment because of the rental income. Of course, this means that we have hardly any quickly available equity...
- How can you best manage the two-part financing? I would probably use the money from the home savings contract to pay off the loan for the plot?

Please let me know if you need any further information.

Hello Ranii,

despite some disadvantages, short-term financing of the plot through a variable loan is probably the best option.

- There are banks that do not support pure plot financing. But there are still plenty of institutions that do. Examples (without claiming to be complete): Ing-Diba, DSL Bank, Deutsche Bank, many savings banks, etc.

- The "big solution," i.e. financing the plot and the house in one loan, only works if the house planning is finalized: floor plan, living area, equipment, cost framework. Many fail here because if you find a nice and affordable plot today (does such a thing even still exist?), you usually have to decide so quickly that there is no time for proper house planning.

- As tempting as long-term financing is in the current interest rate environment, the plot should generally be financed short-term, i.e. variably. Long-term financing, i.e. a long-term fixed interest rate, carries the risk that the bank financing the plot will refuse the subsequent house financing. This only requires something about the house not to meet the bank's expectations/guidelines. If you still want to build and finance, then the bank must be changed and the long-term loan terminated prematurely. This can become really expensive.

- The risk of not getting a later loan for the actual house construction cannot be excluded in advance. Even if you meet the bank’s lending guidelines today, that does not mean that the guidelines at this institution will still be the same in 2-3 years. There are plenty of examples where banks’ lending policies have partially changed drastically. It is better not to take this risk.

However, this approach also has disadvantages:

- If interest rates rise in the next 2-3 years, you will probably regret not having chosen a long-term fixed interest rate for the plot financing.

- If you finance the plot today at Bank A and switch to Bank B with the complete financing in 2-3 years, you will have additional costs for land charge registration and assignment.

I hope I could help.

Best regards, Andreas Wenzel

Could the condominium possibly be used as collateral for the variable loan for the property?

How do you want to have "financing in your pocket" from the bank without being able to present a specific plot of land? I would suggest getting in touch with the dear representatives of the community and openly discuss such nonsense statements. You don't know which plot of land of what size at what price you can buy when and if at all – how is financing supposed to be fixed for that? It is logical to think about the feasibility of the construction (financially) before applying. You are doing that too. But even after being allocated a plot of land, you have 14 days to cancel the contract – so no panic.

A mortgage on the ETW is unlikely to work, as - if I understand correctly - a land charge is already registered. Banks that offer variable loans are not satisfied with second-ranking land charges.

The mortgaging of the apartment can very well work, provided there is enough margin between the sale proceeds and the remaining debt. Either subordinated or possibly even with the bank that is currently financing the [ETW].

The latter even has the advantage that one may possibly save new land registrations.