Financing property purchase and modernization

Hello everyone,

I want to buy a house within the family for about 90,000 euros and expect to invest roughly another 110,000 euros in an extension and modernization. Equity in the amount of the purchase price is available.

Does it make sense to use the equity completely for the purchase, or could it be more advantageous to take out a loan for the purchase due to the presumably better conditions of a construction financing loan compared to those of a modernization loan?

due to the presumably more favorable terms of a construction financing loan compared to those of a modernization loan

Where is the difference between the loans you mentioned? Exactly, there is none in your constellation. In addition, the bank always wants to see the equity contribution first and only then disburse its loan.

It depends.

Purchase 90k and loan 90k = 100% financing, bad conditions

Purchase 90k / 110k renovation / extension = ? % financing, good conditions, disadvantage = equity flows with the purchase, renovation payout with invoice submission.

You are a bit tied there

Of course, I do not want to finance the purchase 100% externally, that is clear. From what percentage of equity capital are there good conditions? Would it possibly make sense to use 50% equity capital for the purchase and the rest for modernization/extension in order to possibly get better conditions and also be more flexible with the conversion measures?

Would it possibly make sense to use 50% equity for the purchase and the rest for modernization/extension, in order to possibly get better conditions and also be more flexible with the renovation measures?

The bank looks at the entire project. So it costs you €200,000. However, we do not know what the house is worth without extension/renovation, since it is a purchase within the family. If it is worth €400,000, you do not need any equity at all and will get excellent conditions. If it is actually only worth €90,000, so rather a bit shabby, it looks different.

in order to possibly get better conditions

No! What flexibility do you need during the renovation? In what way do you see yourself restricted?

Extensive renovations are difficult to estimate. The €110,000 can quickly turn into €130,000 or much more. An extension is expensive. Who estimated the €110,000?

I would deliberately contribute as little equity as possible to have a good buffer later on. Depending on your income and other circumstances, you can choose a portion with a very short term (for example, 5 years) and put the remaining money into special repayments.

Anyway, with the comparatively small amount and the absolute low interest rates, it hardly matters. You will easily be able to afford it with a normal income.

Are you financing alone? Do you live in it yourself?