Financing - Loan-to-Value

Hello,

a quick question about the topic of lending:

If a paid plot of land is available (e.g. purchase price €100,000), the house costs €350,000 and a loan of €260,000 is needed - then the bank bases the total volume, that is €100,000 + €350,000 = €450,000 and calculates from that the €262,000, right? The loan-to-value ratio would then be 58.22%. It is not only based on the house itself (since the loan is only needed for that), because otherwise the loan-to-value ratio would be 74.88% - but that the plot (and equity) is not taken into account can’t actually be the case.

Can someone help me with this?

Regards, StarAce

Your calculation is correct so far. The total value / market value of the property including the land is taken into account. Depending on the lender, a flat discount of 10 to 15% may be applied.

There are banks known for advertising very favorable terms. When the documents are submitted, the bank then values the property very "cautiously". This then results in a high loan-to-value ratio and the good terms are lost. It is by design.

My question points in a similar direction:

If I have, for example, €70,000 in equity, the house costs €185,000, the land €65,000.
This initially means 28% equity.

Are the incidental construction costs then also proportionally included in the property value? Because connections, paving, etc. also contribute to the value of the house.

Or looked at another way: If I use my equity to cover incidental costs, does it still count as equity for the bank or is it assumed anyway?

Hello Sheva, our bank has fully credited our equity toward the incidental costs, or rather recognized it. (So notary, property transfer tax etc. even our notary costs for the marital property agreement, which was not a mandatory requirement ...) Whether this is the case with every financer, I do not know, but as far as I think, it should be recognized as long as it concerns costs related to the house purchase/house construction. Best regards Britta

Thank you very much, Britta. We should go through with the financer to see how it would look for us.