Financing a used house

Hello forum members,

I have found a very nice used house with a pretty plot. It was built in 1999, you would only have to paint the walls and could move in. It should cost €260K plus additional costs, with €100K equity available. So €190K would need to be financed, with the following conditions:

[*]Term 20 years, full amortization
[*]Monthly rate 950
[*]Family income 4K
[*]Age 40 years
[*]No other liabilities

Sounds good, I thought, but it turned out that this is a 120% financing. I suspect the bank values the property very low because it is a timber-frame house in the countryside.

What consequences arise for me from the 120% financing?

It should be added that the above-mentioned conditions come from a nationwide financial advisor, so not specifically from the financial review of a bank for the particular property.

Thank you very much for your answers

Hello

The financing bank will roughly check the house, meaning they will assess it based on location, description, photos, and some other information to determine the lending value. This varies from bank to bank; roughly speaking, you can expect about 2/3 of the purchase price if the purchase price is not completely out of the ordinary.

In your case, this would mean that approximately €175,000 lending value would be set, and you would have to provide the difference in the form of equity.

The gap for you with the assumed numbers would be €15,000, which would be closed if you find a bank that sets the lending value with +73% for the property – then your equity would suffice.

Furthermore, it will also be checked whether you actually have €950 left in your family situation to service the loan.

I would therefore inquire at two or three local banks with the targeted purchase price (maybe there’s some room for negotiation!?) to see how much credit you would get or how the bank(s) would assess the property.

An external financing option (internet, broker, or whatever) can of course still be considered as an alternative, but I am not a fan of it. I considered it myself when buying a house, it didn’t come to it, and in hindsight, I don’t see it as a mistake.

Best regards Dirk Grafe

Hello,

KP: 260k loan 190k and the bank assumes a lending value of 120% for the loan amount. That means they value the house at 158k.

I find the purchase price of 260 compared to the lending value determination of 158 quite extreme. Yes, the banks rely on exposés, photos, and historical values. However, the boom in rural Saxony has certainly passed by ........... I have family in Saxony myself.

As a buyer, either alarm bells would go off for me or I would question the bank how they arrive at 158k.

How long has the house been vacant? In which price range do other houses sell there?

Otherwise, good idea from to also ask the house bank. They should know the local market. In the end, regarding the conditions, I personally would not care whether the lending is 350% or 60% if the interest rate is right.

Only the valuation, that gives me a bad feeling. The framework conditions are right for you.

Some data about the house might also be interesting. If it is only 80m² without a basement on a plot with a value of 5000.-€, then that might be correct. Otherwise, for a newer house, if it is in good condition, a higher value should be expected.

It certainly also depends on the manufacturer of the [Holzständerhaus]. Is it made by a local carpenter, by a reputable manufacturer, or cheaply produced somewhere abroad.

If the bank values the property at the loan value at only €158K, I would definitely inquire further. Either the bank’s valuation is extremely conservative or the purchase price is far too high.

With ancillary costs of 11.5%, the total purchase price would need to be €258K to achieve a "100% financing," which would mean that you must/may buy the house for a maximum of €231K. The question is whether and how this can be accomplished.

The likelihood that the purchase price is too high is indeed possible in Saxony and this is relatively independent of the house manufacturer – if the location is weak, it is weak. Even a "local carpenter" won’t improve it.

Best regards
Dirk Grafe