Financing existing property + renovation

Hello everyone,

I have been an interested reader for some time now and am now in the position of becoming a house buyer/owner myself.

We plan to purchase a house for €165,000 purchase price. In addition to the incidental purchase costs (calculated at about 10% of the amount, i.e. €15,000), there would be renovation costs of €55,000 (including a buffer), so a total volume of €235,000.
We are in the position to finance up to €100,000 within the family at a good interest rate (about 2.5%) for 10 years. For us, it would be interesting to use this for the €15,000 incidental purchase costs, about €20,000 for renovation work that is not value-enhancing from the banks' perspective (kitchen, furnishing, etc.) and as equity for the bank to get below the loan-to-value limit of 80% in order to obtain a good, long-term interest rate for the "large" loan. So a total of €75,000. The rest of €160,000 would then be financed via the bank, whereby the total volume of €200,000 is spoken of and €40,000 are used as equity from the other private loan.
The financing concretely looks like this from my point of view:

Annuity loan 1 (private):
Amount: €75,000
Interest rate: 2.5%
Interest term: 10 years
Repayment: 1.5%
Monthly rate: €250
Annual special repayment: €800
Remaining debt after 10 years: €53,241

Calculated follow-up financing to annuity loan 1:
Amount (remaining debt): €53,241
Equity (Riester): €13,000
Interest rate: 5%
Interest term: 10 years
Repayment: 4%
Monthly rate: €300
Annual special repayment: €800
Remaining debt after 20 years: €9,137

Annuity loan 2 (bank):
Amount: €200,000
Equity: €40,000
Interest rate: 3.3%
Interest term: 20 years
Repayment: 1.5%
Monthly rate: €640
Annual special repayment: €1000
Remaining debt after 20 years: €64,217

Total remaining debt after 20 years: €73,354

The whole thing is also secured by a life insurance policy paid by my girlfriend’s parents. Currently, there is around €38,000 in it, and through further payments and interest, if not needed earlier, this could pay off most of the then remaining debt after 20 years.

Maybe a bit about us: I am 26 years old and have been permanently employed for 7 years (including 3 years of dual study/training) (net monthly approx. €2,600), my girlfriend, 25 years old, starts her job from 01.08. (approx. €1,000 net monthly) - so a total of about €3,500 monthly. Additionally, I receive two further full salaries per year, which are intended/can be used to pay the special repayments.

How do you assess this? Have I overlooked or not considered something? Is the whole thing sensible and responsible? Above all, is this realistic? Also considering that we would like to have children in 3-4 years, which are not exactly cheap to "maintain" either. On the other hand, there is the goal to continue to develop salary-wise over the years...

I would appreciate suggestions/criticism/opinions.

Best regards
Christoph

Hello there,

thank you for the response. Yes, you are right, the "legal" questions are still open in some respects. Also, what happens if we separate has not been finally clarified, especially how the ownership claim will then be handled, because I will have to contribute a larger amount proportionally due to my higher salary than my girlfriend can. In short, the matter is with a friend who is a lawyer/notary and needs to be discussed and securely fixed in writing.

Yes, that's right about the children, but I find it difficult to plan everything around that. We don't know if it will all work out with the children, what the situation will be like in 3.5 or 10 years, how the salary will develop, etc. In addition, my girlfriend is a career entrant with a 50% position, which will most likely increase to at least 80% or 100%, meaning the monthly total budget will rise. Also, the house purchase came somewhat "surprisingly" in terms of timing, and we are currently still spending a lot of money on non-essential things. I know that once you get used to a certain standard, it's hard to go back down, but we still have a lot of potential for self-optimization there without really living worse. My questions were more aimed at whether the financing itself is sound and realistic/responsible based on our "key figures." How does a bank assess that, how is my creditworthiness calculated? I think the burden of under 900€ is not that incredibly high because a rental apartment of that size in the city would certainly be just as expensive or even more expensive. In addition, I had hoped to maybe get some tips on whether other options, such as a KfW loan or building savings contracts, would be sensible/better than these two annuity loans?

I have already considered your last point. The purchase price is quite cheap, I agree with you, but fortunately due to personal circumstances. In addition, there is a certain need for renovation because the house (built in the early 90s) was basically only maintained and kept "in shape," but especially the interior was neither renovated nor upgraded. So there is a certain need to design it according to our ideas. However, I also plan to have the property inspected in advance by a friend who is an interior architect and building surveyor – of course, the purchase decision will also depend on that. For example, if it turns out that there is mold under the roof or whatever, then the purchase price would of course not be justified – but as of now, we do not assume that. In general, it is certainly advisable to spend a few hundred euros to have something evaluated independently, right?

Our equity is precisely that life insurance (see above). However, we would like to keep it as security because, based on the conditions, it would currently not be worthwhile to dissolve it and use the capital. Hence my proposed model.

Best regards

Yes, that's what I thought and that will definitely be done.

It's true that in winter you probably see the weaknesses of the house better than in summer, but this is our "dream property" after all and it is now for sale – but that's why the saying "So test who wants to commit forever" applies even more.

The thing with the additional costs is of course correct, apart from increased additional costs for electricity/gas (which are probably also somewhat higher in a 130 sqm house than in a 70 sqm apartment), there are also taxes, insurance, other additional costs etc. etc. to consider. Of course, all that has to be taken into account, just like regularly building reserves. However, since I can currently save over €500, which I would rather invest mostly in property ownership than leave in the bank, I think this is feasible for us.