Finance the property now or continue saving equity?

Hello dear ones,
I have also been a silent reader for a long time. Buying a house has been occupying my husband and me for quite some time. Now the thing is, we have found a dream plot of land but want to build only in 1-3 years.
The question now is whether it makes sense to finance the land already and build later or to first accumulate more equity. Our current savings rate is about €4000/month. What is more financially sensible? A little about us in advance: My husband is American. With foreign income, our interest rate is 5% with a maximum term of 20 years. Due to unsecured credit limits, we would have to pay a higher monthly rate for the first 5 years and then be able to reduce the rate.
Monthly expenses are about €2800 + rent. I am looking forward to answers...
Best regards

General information about you:

[*]Who are you? Married couple
[*]How old are you? w38 m41
[*]Are there children? 1
[*]Are children planned? No
[*]What do you do for a living? US Army and MTR
[*]Are you employed, self-employed, retired, housewife, househusband, etc...?
[*]How many hours do you work? Full-time and part-time

Income and asset situation:

[*]What income do you have (gross/net)? approx. €7000 and €1100 net
[*]How much child benefit do you receive? €250
[*]Other transfer payments like parental allowance, sickness benefit, etc...?
[*]How much equity do you have? €70,000
[*]How much equity do you want to put into the house project? Almost all

Expense situation:
Expenses already included in other categories can, of course, be omitted. This list is not exhaustive and can be expanded or summarized as desired. Please make sure to state all costs monthly, even if they only occur annually!

Housing costs:

[*]current cold rent €1100
[*]current warm rent €1235
[*]electricity €80
[*]gas €180
[*]water, sewage, garbage fees, street cleaning additional costs
[*]telephone, internet, mobile phone €155

Mobility costs:

[*]monthly ticket for bus and train (also for the children!) €12
[*]car loan (or savings rate for a new car) €0
[*]insurance €100
[*]taxes €14
[*]fuel €300
[*]repairs €0
[*]others
[*]Is there a second car, motorcycle, scooter? Please list all points again!

Insurance costs:

[*]private health insurance (including supplementary health insurance, daily sickness allowance, etc.)
[*]liability insurance (including pets)
[*]capital or term life insurance
[*]pension insurance (also Riester, Rürup, etc...)
[*]disability insurance
[*]accident insurance
[*]household insurance
[*]legal protection insurance
[*]other insurances (such as travel insurance, funeral expenses insurance)

Living expenses:

[*]groceries €500
[*]restaurant costs €100
[*]care/drugstore
[*]pets (food, vet, medication, stable costs) €100
[*]medications
[*]clothing
[*]furniture
[*]daycare/school fees (and meal money)
[*]tutoring
[*]school supplies and books
[*]club fees/fitness studio €10
[*]babysitter
[*]toys
[*]cleaning
[*]TV/video/audio/CDs/DVDs
[*]tickets (soccer, cinema, concerts, etc...)
[*]donations
[*]other €380

Savings:

[*]vacation
[*]house €4000
[*]retirement provision
[*]hobbies/gifts
[*]other

Other expenses:

[*]maintenance payments?
[*]loans?
[*]other?
[*]Anything forgotten? Then please specify here at the latest!

Income and expense totals:

[*]total income €8100
[*]total expenses €4000
[*]balance €4100
[*]of which sum cold rent and dispensable savings (e.g. savings rate for house)

General information about the property:

[*]How big is the plot? 700m2
[*]What are its dimensions?
[*]What is the standard ground value?
[*]New build, old building (year of construction), house type?
[*] ?
[*]How big is the house? ( / usable area)
[*]What is the market value of land and house after completion?

Construction or purchase costs:

[*] €225,000
[*]Development costs: already developed
[*]Acquisition incidental costs (notary, court, land transfer tax, broker) 12%
[*]Building or purchase costs (incl. , )
[*]Renovation and/or refurbishment costs
[*]Additional construction costs (e.g. house connections, soil expert, construction power, etc.)
[*]Outdoor facilities/terrace, paths, garden design, fences, etc.
[*]Financing costs (e.g. fees or commitment interest)
[*]Total costs

Other costs:

[*]kitchen costs
[*]furniture, lamps, decoration
[*]other "non-acquisition, acquisition incidental, construction or additional building costs"

Cost summary:

[*]total costs
[*]deductible equity
[*]financing amount

Required loan details:
(for multiple components, please specify for all components, for multiple variants, please clearly separate them):

[*]loan amount
[*]loan type (e.g. annuity loan, bullet loan, etc...)
[*]interest rate (p.a. nominal, otherwise effective)
[*]fixed interest period
[*]remaining debt at the end of the fixed interest period
[*]assumed total term until full repayment
[*]initial repayment rate
[*]monthly installment
[*]special repayments possible? (please specify amount)
[*]repayment rate change possible? (conditions such as number, repayment rate range to be specified)
[*]For pre-, interim- or termination loans with building savings contracts, please specify details about the building savings contract (contract sum, credit interest rate, minimum savings rate, minimum savings amount, planned savings rate, Riester premiums, expected allocation date, later loan installment, loan interest, etc...)

Let's assume the house to be built, including additional costs and all the rest, comes to €550,000 + €250,000 for the plot including purchase incidental costs, minus €70,000 equity. That would leave about €730,000 to finance. At 5% interest and a repayment rate of 2%, I see a hefty installment coming your way despite your substantial income. Try to continue reducing current living expenses and maximize savings rate. You should be able to save a good €100-120k more in 2 years and then reconsider the situation. I can’t imagine that land prices will rise significantly by then and building costs should only increase moderately if you start planning with a higher energy standard. I assumed that with the €550k construction costs as well. Maybe you can manage with 130 m² and a very simple standard, then the house might cost €100k less, but I can’t judge that. That would make the calculation look a little different again. The large plot also needs to be landscaped.

I would consider the project as a whole again and go through how the house is supposed to “look” on the plot. Without a full cost calculation, otherwise it could become a nasty crash landing.

I find it implausible how construction prices are not supposed to rise significantly with 7% inflation this year and another 3% in 2024. Even if it’s "only" inflation, we are talking about 10%, which means a price increase of 55,000 EUR in 2 years. Saving up against that makes no sense. Interest rates will also decrease, but not in the next 3 or 4 years. The target corridor for inflation must first be reached, maintained, or undershot steadily for 2 or 3 years. And 5%? Currently probably closer to 4. A house doesn’t have to cost 550,000 EUR either, but this absurd debate is ongoing here all the time, it’s exhausting. 8,000 EUR net, it hardly gets better than that. I wouldn’t wait.

Thank you very much for the answers. We are not aiming for a pompous house. Possibly a prefab house without a basement with standard equipment, a carport is enough. About 130-150 m2 would be nice. Since we would have to finance under quite poor conditions, I am aware that we have to save in many areas. The goal was to save at least €150,000-200,000 as equity in the next 2-3 years. We are not under great time pressure and it does not have to be right now. The dream of homeownership is just there, and you start to look around. The plot of land is just incredibly great in a top location. And the idea was to secure this plot and then continue to save equity. I am just not sure if that is a good financial decision because of the high interest rates, and whether it wouldn't be better to buy a plot without financing from equity in a few years or to do the house construction and land financing together with good equity. €300,000-400,000 as financed amount would be comfortably feasible for us. I hope that is realistic. Now, you mean that it already pays off because of inflation, right?

Do you have a building obligation there? If that is your dream property, then I would consider buying the plot now. When doing so, maybe consider financing it flexibly (so you don't block yourself from a full financing), although that is currently a bit tricky... I would at least go through the options and talk to a financial expert about it. If you want to build "in 1-3 years," then I wouldn't do nothing until then. So, now evaluate what your options are (possibly with an external advisor), what is important to you, and then see if the plot fits that or not. But rejecting a plot today because "we only wanted to build next year" sounds nonsensical to me at first, if it is financially somehow possible.

It is especially nonsensical because between "We want to build" and "the excavator digs the pit" there are often 1 or 2 years of planning and lead time. Not a few builders spend 5 or 6 months just searching for the right construction company and then another 6 months planning. If you want to build, then now.