Home financing: Is it sensible or should we wait a bit longer?

Hello dear forum,

my boyfriend and I are planning to build a house in the next 1-3 years (possibly also to buy one if something great comes up during that time). Now we are financially, of course, considering whether we can afford it. Whether we should start planning now and possibly build from 2015 or whether we should wait a bit until we are married and I have started my first job. Therefore, I would like to gather some opinions from you, even though we will have our first consultation next week at a [rote Bank].

About us: I am 25 and currently still a student. But I am in the final phase, meaning I will have my master's degree next summer and hopefully will find a job quite soon after that. I will probably earn between €1300 and €2000 net if I find a full-time position. My boyfriend is 31, works full-time as an engineer, and earns €5000 gross (about €2500 net).

Since my boyfriend earns quite a lot net and we also plan it so that he can manage the loan on his own if we have children and I can't contribute money to the house, we are already thinking about building a house during my studies. Since the interest rates are currently quite low, it is very tempting to take the first steps now.

Regarding the capital: We have three home savings contracts in total. Mine has a savings sum of €16,000 but has very high interest of 5.75% effective interest rate, which is why we prefer to keep it and continue paying into it. Currently, there are €5100 saved on it. I couldn’t pay much in so far because being a school student and then a student, money is known to be tight, and the contract basically paid for itself. My boyfriend has two more home savings contracts. One for €50,000 (with currently €12,500 saved, but by September 2014 with €25,000 saved) which we would also like to invest in the house, and another one for €25,000 with also very poor interest conditions, which will be kept for emergencies or follow-up financing.

My boyfriend also has a [Riester-Rente], currently with a balance of €15,000. However, we are unsure if we actually want to convert this sum into the [Wohnriester-Rente] and make use of it. Since the [Wohnriester] would have to be taxed in retirement, we are not yet 100% convinced. However, the tax subsidies and faster repayment of the loan are certainly not to be underestimated.

At the moment we have calculated that we would take out a loan from a bank for €215,000 with 3.01% interest and 1% repayment for 20 years and another €50,000 from the [KFW-Bank] with 1.41% effective interest for 10 years. Together with the home savings contract, we would come to monthly installments of €1390 to pay – if we did not miscalculate yesterday. My boyfriend set the repayment rates for the [KfW] loan and the home savings contract very high at 7-9% (I don’t even know if such high repayments are allowed?). So it would also be possible to have lower monthly installments if we reduced the repayment a bit. But then correspondingly more would remain after 10 years (which we assumed for the [KfW] and home savings contract) and would have to be paid. After 10 years, we would prefer to have only the bank loan left, which would then have to be paid off with higher repayments.

Well, to summarize again:
Equity capital: approx. €45,000 (home savings contract €30,000, [Riester-Rente] €15,000)
Borrowed capital: €50,000 ([KfW-Bank]) + €215,000 (other bank – consultation needed).
Monthly rate: approx. €1390 (however, the [Wohn-Riester-Rente] was not considered here).

Now about our current rental situation:
We pay €690 cold rent. My boyfriend said he currently saves €800 monthly, which could also be used for loan repayments. That would bring us to €1500 monthly.

Of course, we also want to agree on special repayments since I will have more money when I work and want to put the money into special repayments.

Now the question: Is €315,000 enough for a solid detached house with about 120-140 sqm living space without a basement, but with a carport and rear storage, on a plot of about at least 500 sqm (probably €70,000-100,000 depending on location)? Are the monthly installments set too high? If we were married, my boyfriend would get more net income. Would we even get a loan currently since I am still a student? We don’t actually have high demands, I think, but that will probably only become clear during the planning phase whether we have high demands or not! Personally, the garden is important to me; it should be big enough for the children and the future dog to romp around and for me to garden!

Best regards,
Frepa

My feedback on 2 points is:
1) As a student, you will not get a loan because you have no income/salary. Your boyfriend with a net income of €2500 also will not get a high one...
2) It would be completely illogical to pay off a loan with low interest rates faster than a loan with high interest rates. It makes no sense and costs more. So all (special) repayments you have left should go into the "expensive" loan to reduce the burden.

One piece of advice: wait with the construction until you have a job.
You should not marry just because of the money, but if there is already a house being built, you could of course consider securing each other and also push the man's net salary a bit higher.

Now I gladly pass it on to the other advisors

No, no, my boyfriend should take the loan, not me.

2) So pay off the bank loan with the higher interest more, and the rest less?

And we won’t get married because of the money, we’ll get married when we want to! Either it happens before building the house or sometime after!

My feedback on 2 points is: 1) You won’t get a loan as a student because you have no income/salary. Your boyfriend with a net income of €2500 won’t get a high one either... 2) It would be totally illogical to pay off a loan with low interest faster than a loan with high interest. It makes no sense and costs more. So all (special) repayments you have left should go into the "expensive" loan to reduce the burden.

One piece of advice: wait to build until you have a job. You shouldn’t get married just because of the money, but if a house is being built anyway, you could of course consider securing each other and also increasing the man’s net income a bit

Now I gladly hand over to the other advisors

Even "normal pension payments" from a Riester pension are subject to taxation!

Within one year, €12,500 is saved on one building savings contract? And on the other one? How much balance is on it now?

I would probably wait until next year and then proceed as follows:
Continue to contribute to your building savings contract, I think the interest on the balance will not be bad.
Use the building savings contract of €50,000 for financing (balance + loan), of course depending on the conditions.
Possibly dissolve the building savings contract of €25,000 and use the balance (how much?) for financing, of course depending on the conditions...

ypg already said it, the loans with the highest interest should be paid off first. Especially since in your example there would be a 20-year commitment anyway.

€315,000 could be very tight for your wishes at the moment.

What I just remembered, the building savings contract will specify the amount of the repayment.

Right, that’s at least how I understood my friend. Currently, there is a credit balance of €12,500 on it.
With my home savings contract, I have a credit interest rate of 3.5%, so actually quite good.
The conditions for the €50,000 home savings contract are at 2.34% effective interest rate.

Ok, then you would actually handle it the way we had planned. We wanted to wait a year anyway or start building at the earliest at the end of 2014, since before that it would actually be too early and you first need to read up/inform yourself...

But €315,000 could be enough? You could also add the garage later, right?