Financing for land with or without equity

We want to buy a plot of land through financing and then take care of the construction. A variable financing option is definitely sensible for the land financing, as we want to proceed with the house construction and its financing as quickly as possible, but still within an undefined time frame.

Can one generally say whether or to what extent it makes sense to include equity in the land financing, or should the equity be held back until the house construction financing? Of course, this still needs to be clarified with the bank, but I want to inform myself in advance. :-)

Best regards

Hello cordi,

in most cases, it makes sense to also contribute equity capital to the property financing. For two reasons.

Firstly, there are practically no interest earnings on bank deposits. So you don’t lose anything by contributing your equity capital sooner rather than later. In addition, the interest rates for variable loans are no longer favorable (compared to long-term fixed interest rates). The less loan you have to take out, the better.

Secondly, banks offering 100% property financing have become rare. With a 20 percent equity share, a few more banks should still be persuaded. The pool of available credit institutions thus becomes larger. And that is always positive.

Best regards and good luck
Andreas Wenzel from Leipzig

Hello,

using equity for the land purchase is definitely sensible. If possible, the land should even be paid entirely from equity - it is then counted as equity again in the building financing.

However, one should not completely "strip oneself." Furniture and a kitchen are financed by very few credit institutions. Therefore, you should always keep the money for that and an adequate safety buffer in reserve.

Otherwise, your approach with a variable financing that is replaced by the "final" house financing is the right direction.

Regards,

Dirk