Financing land purchase - house construction later

2021-08-22 20:48:12

Dear forum.

My partner and I are currently planning to purchase a plot of land. The purchase price including ancillary purchase costs is around 120,000 euros. We are contributing 50,000 euros of equity. Since there is no building obligation on the plot and we are not in a hurry to build our house, the question now arises as to which financing we should aim for the required 70,000 euros, without it hindering us in our planned house construction in 3-5 years. We would like to pay off as much as possible.

What approach would you recommend to us in our case?

2021-08-22 20:59:13

Finance 70,000 over 5 years and repay completely - if possible.
When building the house afterwards, certainly > 1500 € per month will be due, so you can already "practice".
However, if you are already paying 2000 rent now, of course that won't work.
Your financial advisor will tell you more precisely, because we (still) don't know your numbers.

2021-08-22 20:59:21

Very good idea. Buy land and pay it off. Later then build a house on it. 120,000 is not a large amount. Maybe pay 20 percent of the equity as a down payment, finance the rest.

2021-08-22 21:15:08

Thank you very much for both of your suggestions.

Our idea would be to repay as much as possible and have the loan paid off in 5 to a maximum of 6.5 years (since we are currently living very cheaply, this would also be feasible). However, during a first quick research on ING, I noticed that even with a 10% repayment rate, repayment would only be possible through an annual special repayment. Assuming we wanted to start building the house before fully paying off the loan: Would the loans or the mortgage in any way hinder each other or would this be disadvantageous for our financing model?

Additionally, I wonder whether it makes more sense to use the entire equity capital for the land purchase or whether it is better, as suggested by Durran, to use only part of the equity capital for that. I do not yet fully understand the advantage of the variant suggested by Durran.

2021-08-22 21:33:55

Thank you very much for both of your suggestions.

Our idea would be to repay as high as possible and have the loan paid off in 5 to a maximum of 6.5 years (since we currently live very cheaply, this would also be realistically achievable). However, during a first brief research about ING, I noticed that even with a 10% repayment, paying off the loan would only be possible through an annual special repayment. Suppose we wanted to start building the house before fully paying off the loan: Would the loans or the land charge interfere with each other in any way, or would this be disadvantageous for our financing model?

Additionally, I wonder whether it is more sensible to use the entire equity for purchasing the land or if, as suggested by Durran, it is better to use only part of the equity for that. I have not yet quite understood the advantage of the variant suggested by Durran.

Take a variable interest rate. We took one with a 5-year fixed interest period, and now after 3.5 years it was problematic to find a bank that would take the second rank.

2021-08-22 22:12:04

However, during a first brief research about ING, I noticed that even with 10% repayment

I can only advise you not to choose a fixed interest rate. Unfortunately, we did, and then the circumstances changed much faster than expected, and then the flexibility was missing because the property is still tied to a loan and no other bank will take the second lien!

We are also repaying 10% + the highest possible special repayment and would be finished after a total of 6 years. We are building now after 2.5 years.

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Financing land purchase - house construction later

la-ma-ma

driver55

Durran

la-ma-ma

Acof1978

Yaso2.0