House construction financing: okay or better to make cuts?

Good day everyone!
I have been a quiet reader for a long time but now that it is getting serious, I wanted to give some feedback.
We currently have a plot of land in sight and already have a relatively concrete idea:

Plot: €100,000
House ready to move in: €500,000
Additional costs: €60,000
Broker and tax: approx. €10,000
total: approx. €670,000

We have about €90k equity. €220k would come from KfW because of [qng].

We are 35 and 37. I have a net income of €3000 as an employee. My wife, as a civil servant, works just under 30 hours and earns €3200. We have 2 children aged 3 and 5.

A bank would finance this for us. The rate would be approx. €2450. Together with child benefits, we have approx. €6700. That means it would be 40%.

I know no one can make the decision for us but should we do it or not? Of course, no one knows our expenses either, but I am more interested in an objective opinion on this. From our circle of friends, the opinion came that it might be a bit too ambitious. Although my wife wants to work full-time again in about 3-4 years.

Alternatively, we could perhaps make some compromises. So initially no carport or only the minimum photovoltaics, etc.

Thanks for your opinions! And have a nice Sunday

objectively the opinion

that will be difficult, opinion and objective at the same time. ;)

alternatively, maybe a few compromises could be made

that brings me to the question of why you have built up relatively little equity in recent years. Are there significant reasons for that, do you have more but do not want to invest it, or is it difficult for you to make compromises?

I would not plan in a way that requires compromises from the start. I would rather save on the square meters of the house. Space is often overestimated; smaller can also be very comfortable.

According to your calculation, you have about 4200 euros left after repayment. That is very very very okay for a family with 2 children. You don’t make the biggest leaps, but in my opinion, it is really easily possible to live comfortably on that.

Still, I recommend you keep a close eye on your expenses now and also really carefully calculate the construction costs again. If no mistake has slipped in and all the numbers are realistic, then I would probably do it. I myself am always a fan of the small house. That fits well when the finances are "normal" and not, as mostly represented here in the forum, above average.

I wouldn't do it, but how does that help you? It depends on how much you can limit yourselves, how much you have already done so far or not, and what other fixed costs you have.

After the repayment, there are still additional costs, insurances, one or two cars, vacations, etc. Possibly also hobbies or pets. If one of you has to cut back, you quickly have a problem or at least it gets really tight. Then you live in the new building, but have to live as if you were much poorer because you no longer have enough cash. That would be too little freedom for me because simply not much can go wrong.

At the same time, I believe many finance like this and manage. It also depends on your own need for security and whether it would bother you a lot to have to sell the house in the worst case. And: What are the alternatives? Why not a cheaper used property that leaves you more for life?

In the end, you have to decide whether you want to commit yourself so strongly to the house (how long do you actually make payments, and how much is the residual debt after 20 years?) and possibly give up bigger trips etc. for it. For some that is totally okay, for others not. You just have to be honest with yourself before taking the step.

From a comfortable financial situation, one can of course quickly put oneself into a position that is no longer so comfortable.

In a phase where there are uncertainties everywhere, politically as well as economically, I would currently refrain from such investments.
You then have around 600,000 euros of debt on your back. Costs are exploding on all fronts, and in addition to the loan installments, there are also around 1000 euros of operating costs for your house. That leaves about 3000 euros for your living needs and the children.

You want to finance holidays, cars, children, and living expenses from that. Yes, it is possible, and most other people in this country also do not have much left to live on. But that depends on your standards. And those seem to have been somewhat higher due to the previously accumulated equity capital.

You can also build a good and nice house for 300k, then you would have half the installment. Times change, after all.

We are in roughly the same situation in terms of life/income, but had almost 300k equity and still financed at 1.3%. However, we would not have started our project at today's interest rate. We financed the land and construction separately and pay about €1,900 for both loans. That corresponds almost exactly to the "ideal" 30% of our income today. My opinion: If you are really willing to make compromises on the house - meaning somewhat smaller, with manageable personal contribution and staying standard - 400k for the house should be sufficient. If you manage that, it is already a good prerequisite for your project. However, I do not want to give you any concrete advice at this point, as too many numbers and circumstances on your side remain unmentioned.

Financing beyond 2K always has a bit of a downside for me. The interest rates haven't been this high for long, and psychologically it's a completely different thing whether the financing starts with a 1 or a 2, even if the difference is only a few hundred euros.

For you, it’s not a super comfortable financing, but you also have a solid income. I always think it’s a bit different whether someone spends 40% on financing who earns >6k net, or someone who maybe only has 4k net. It simply makes a difference in the end.

I would make the decision dependent on how much "hobby" you see in the new house. For example, we have just moved into our new build, I’m still on parental leave – we have our belt tightened a bit more than usual right now. But we enjoy the new house to such an extent that for me at the moment it well replaces the fact that I can’t throw hundreds of euros a month out the window for hobbies or clothes. It’s generally not so important to me.
We enjoy every day in everyday life the many conveniences that come together here. It just makes us happy to be here. That compensates for the financially tighter situation for us.
But we also know that it will get better again. I will go back to work, then everything will relax. 1-2 years until the daycare costs disappear and everything runs more smoothly. Currently, we are also in promising professions, so we still have potential to increase our income over the next 10 years.

How is it with you? Are you already "at the end" with your salary? Do you have professions that are promising, where you might earn more again? I would include that in your consideration, but not make anything dependent on it – because of course that is not certain / plannable.
Also calculate the opposite case again. What if you were (even just for a while) unemployed? Would you still manage if you had to bridge a few months with unemployment benefits?