Financing without equity with security?

Hello everyone,

my family and I have taken the first steps towards owning a home. We have already received an offer for a plot of land in the Niedersachsen area (519m² for about 75K€) and a house offer (190K€ for 138m² KFW100 without a basement, or 240K€ including a partial basement). All in all, I am looking at a total cost of around 310-350K€. (including extras, garden, carport, etc....)

The bank has given us an offer of 2.77% interest on the entire construction sum, which we want to cover with my salary (currently 2600, soon - 3000€ / month) (I am 36 years old and permanently employed by a large automobile manufacturer, my girlfriend earns about 1000€ including child benefits). Currently, equity capital is at most 10K€. Our family planning with two children is already complete.

From acquaintances and also from the bank itself, I was told about the possibility of using the parental home as collateral and thus getting an interest rate of currently 1.66%. However, I am very uncertain whether this does not represent a very large risk. Does anyone of you have experience or cases in your circle of acquaintances where something like this has gone well or badly? Is it possible to insure oneself so that the parental home does not go down the drain?

I would be glad if I could get some input from you here!

What can happen? You become insolvent for whatever reasons, the bank auctions off the parental home, the parents are evicted by new owners onto the street. This is exaggerated - against insolvency (it can also be a divorce, death, unemployment) you cannot insure yourself either. I would not do it.

Thank you, you exactly express my concerns. The low interest rate is of course attractive (after all, it amounts to over €3000 per year)

EDIT: Is there any way to prioritize repaying this debt so that it is paid off earlier?

You can make two loans out of it, one for each [ProHaus]. High repayment for one, very low (or no repayment) for the other loan. The interest rate may be slightly different.

At the bank, we have an offer for the entire construction sum [...]. Currently, a maximum of €10,000 equity is available.

Is the offered loan and the €10,000 enough for the project? You alone owe €3,750 real estate transfer tax on the plot (possibly even more on the entire project sum).

If you are offered 100% financing, then in my opinion it will be very tight to impossible to manage the project, because the part beyond 100% will most likely amount to more than €10,000.

And personally, I would advise against financing beyond 100%.

You could make two loans out of it, one for each house. High repayment on one, very low (or repayment-free) on the other loan. Possibly the interest rate is slightly different.

That would be a variant I could live with. I’ll talk to the banker about it, thanks!

The bank’s offer covers the entire amount, including all previously recorded "soft" costs, such as notary, property purchase ... plus a little buffer. The 10,000€ should be set aside, if I need it, for a kitchen and/or part of the garden.

It might also be worth mentioning that we want to do trades like electrical work, flooring, and painting ourselves, as well as gardening, landscaping, and carport construction (with the help of friends).