Financing land - house construction later

Hello dear forum members,

we want to finance a plot of land that we really like. However, since we only want to start with the construction planning in the next few months, a full financing of the land and construction costs is not an option at the present time. It will certainly take one to two years until the planning is complete and the concrete construction costs are foreseeable.

We have received information several times (research in forums as well as advice from brokers) that the financing of the land should be done with a variable loan, as these loans can be repaid without prepayment penalties at the end of the quarter. Then the "follow-up loan" for the total costs can be taken and the variable loan repaid. Advantage: the land charge of the first bank is deleted/assigned; the second bank has first position in the land register and can offer better interest rates. Disadvantage: the bank naturally charges higher interest for this "short-term business."

Therefore, I wonder if this is the best solution in every case. As mentioned, the conditions of the variable loans are not particularly good (interest rate between 2.6 and 2.8 despite the currently low interest rate level). We have already received a corresponding offer. In addition, the interest rates are only fixed for 3 months and are therefore uncertain (even if a major increase is currently rather unlikely). I have also heard that some banks do accept second rank in the land register and only raise the interest rates slightly. Against the background that the land in our case would only represent about 1/3 of the total costs, the "second" bank would still be secured if one assumes that the land is worth its price (approx. €100,000). Therefore, I wonder if there are better financing options.

I would like to get a more detailed overview of the possibilities. Many thanks in advance!

PS: for the sake of completeness: little equity (but covers ancillary building costs in any case), however secure net income > €5000 (civil servants)

Hello Nanni33,

Your summary of the options for property financing is correct. As an alternative to variable loans, you could also request an interest rate fixation of 1-3 years from regional banks (Sparkassen/VR-Banken). These are often cheaper than variable conditions. Should you then start building after only one year, that would also not be a problem. The property financing can then, when applying for the house financing at the same bank, also be contractually included via a forward loan. This way, the bank will definitely have the first rank in the land register when the property financing expires.

A better alternative would be if there is additional real estate assets (preferably unencumbered) within your family. Then the financing of the property could be secured via free land charges on this property and a long-term financing could already be applied for today. This would also have the advantage that the later house financing becomes cheaper, because the loan-to-value ratio is significantly reduced by the additional security.

Best regards

Andreas

Over a year ago we had the same situation and solved it as follows: Loan 1 for the land fixed for 5 years and now (after the construction costs are fixed) Loan 2 for the house fixed for 15 years. This was discussed in advance with our bank (Ing-Diba) and was possible without any problems.

Regards, Steffen

It looked very similar for us. We fully financed the property. Fixed interest rate for 1 year at 1.75%. Since December, we have continued the loan variable at 1.50%. At the time of purchase, the variable interest rate would have been 4%, which is why we fixed it for 1 year. Now, after a year, since the bank's credit costs have roughly stabilized, we also have a "reasonable" variable interest rate.