Half equity available. Finance land and house construction

Hello everyone,

I am planning to buy a plot of land together with my wife to build a house on it.

We already have a plot of land in sight and a rough offer for the house as well.

The plot costs, including all additional costs, about the same as the house. We have half of the total investment available as equity and are now wondering whether we should pay for the plot with equity and finance the house, or vice versa.

At the moment, we tend to pay for the plot with equity and then finance the house fully. The plot is then counted as equity in the calculation.

Are there any other opinions on this?

Thanks and regards

Hello Neonjay14,

actually I would write to you - "it makes no difference" - so whatever. The bank will count the property as equity. That’s how we did it too - only we have a smaller amount in reserve.

But: If you plan to do some work yourself, you might need a bit of money to buy materials, rent transport/machines, give helpers a small payment, etc. It could be that the bank won’t give you money for certain things and you will have to figure out how to pay for them. You should openly address this during your financing discussion.

As f-pNo already says: land counts as equity and possibly have 20% of it co-financed. By the way, most banks require that the mentioned* equity be used up first in financing, because equity belongs to financing, just like interest belongs to repayment. *Means: you should not state all your liquid assets, but only those which are to flow into the financing.

@ f-pNo We want to build at a fixed price without own contribution and will receive an offer for this shortly. @ ypg Thanks for the hint. We had intended anyway to include about 10% more than the fixed price and to have about 10% of the total amount as equity in reserve. Of course, we will not declare the equity in the financing.

Remember: The fixed price only applies to what is stated in the contract. Everything that is not included but is still needed will cost extra.

Example: There are houses at a fixed price, without the foundation slab. That costs extra.