How to structure financing for the purchase/renovation of an old semi-detached house of 115 sqm?

Hello!

We are looking for input on the financing of our planned project.

General:

[*]Who are you? Married M39/W35
[*]Do you have children? No. Our child has four paws and fur
[*]Permanent employment
[*]How many hours do you work? Both 40 hrs. / week each

Income and asset situation:

[*]What income do you have (gross/net)? Together we have a net income of ~8,000 EUR / month from 2025
[*]How much equity do you have? Together ~50,000 EUR. Why so little? See text
[*]How much equity do you want to put into the house project? Initially purchase incidental costs amounting to ~20,000 EUR. Rest see text.

Housing costs:

[*]Current loan for condominium: 1,350 EUR / month
[*]Current additional costs condominium (service charge / maintenance / gas / electricity): 750 EUR / month
[*]Outstanding balance condominium: 325,000 EUR at 2.1% interest. Fixed until 2047 at DKB.
[*]Value of condominium: 350,000 to 400,000 EUR

General information about the semi-detached house:

[*]How large is the plot? 250 sqm
[*]Old building from 1922
[*]How large is the house? Approx. 115 sqm living space (attic with about 15 sqm expansion reserve) / 5 sqm usable space (partly basement)
[*]Two-story semi-detached house with gable roof. Attic so far not developed

Construction or purchase costs:

[*]Acquisition incidental costs (notary, court, property transfer tax): 20,000 EUR
[*]Purchase costs: 287,000 EUR
[*]Renovation and/or refurbishment costs: approx. 300,000 - 350,000 EUR (according to schedule by architect)
[*]Total costs: approx. 650,000 EUR

I have strongly shortened the expenses side.
We have normal consumption of two adults, two compact and inexpensive combustion cars, nothing special.
With our income, I basically see no problems with our plan.

So, what is our concern now actually?
We currently live as a couple with our furry friend in an old apartment in a big city in northwestern Lower Saxony, which we bought in 2021.
We lovingly renovated the apartment back then with our equity (new plaster, new electrical installation, new heating, sanded floors, etc.)
That used up much of the equity. From today’s perspective, it would probably be wiser to finance the renovation as well :-)

Life circumstances / wishes change.
An unexpected opportunity has arisen to acquire a beautiful but totally in need of renovation semi-detached house in a fantastic location.
We have agreed on the price with the seller.
The property must be gutted and renovated.
We want to completely refresh the property (core insulation, roof including new insulation, new windows, new electrical installation, insulation of wooden beam ceilings, water-bearing ceiling heating, heat pump). We will have an energy consultant check whether we can achieve KFW 85 or even KFW 70.
Exterior insulation is not allowed due to a preservation statute in the neighborhood; we want to avoid interior insulation.
We want to sell our condominium at the same time and consider 400,000 EUR realistic.
That would then also somewhat replenish the equity.

Our question is: How do we best structure financing for this?
We currently see the following options but ask for feedback / alternatives here, as we have no experience with BAFA and KFW so far.
1. DKB mortgage swap + KFW 124 + KFW 261 ?? EE + small second loan at DKB.
2. DKB mortgage swap + second loan at DKB + individual measures funded by BAFA
3. A completely new loan + KFW 124 + KFW 261
4. A completely new loan for the entire project without KFW + individual measures funded by BAFA

So.

A mortgage swap would basically be attractive for us, we believe, since that way we could keep the favorable loan.
But for that we have to sell our apartment relatively soon, which is of course not guaranteed.
We have never dealt with KFW funding before.
The conditions of KFW 261 sound tempting, of course. Is the extra effort worth it now?
Or should we rather have individual measures funded via BAFA?

I look forward to your feedback!
If anything is unclear, please just ask directly!

I would first reflect again on where the equity has gone. The condominium is hardly worth more than its mortgage, and you have €50k equity with an extremely good income. Are you sure that was only the condominium renovation? How much did it cost and why is it barely reflected in the value? With that salary, it can certainly work out financially somehow, but there must be a missing expense item somewhere. Or have you only had the current income situation for 2 years? Question that yourselves, I don’t care in the end, but with that loan amount there can’t be such a huge additional expense item. Just as a thought: You would have started working "late," at 28, still an average of 10 years of employment. In that time, you saved €5-10k per year even though it could have been €40-50k/year.

Hi,

thanks for the feedback.

The big secret item in the expenses is relatively simple: real estate + late start.

[*]My wife and I started late after graduating.
[*]I started with a net 1.2 during the first 2-3 years, my wife with a net 1.0 during her first 2 years.
[*]We have been given many good memories and experiences as gifts/inheritance, but no economic goods.
[*]We will only be at this income level from next year; until 2023 it was noticeably lower.
[*]We have put about 100,000 EUR into our owner-occupied condominium and two further rented apartments in the last 4 years through additional purchase costs, maintenance, and renovations.
[*]We may sell the rented condominiums tax-free in 6-7 years and expect a solid profit then – otherwise, the properties now simply pay for themselves through rental income.

And with that, the puzzle is largely solved.

Back to the original question: Which financing option is fundamentally to be preferred and why?

Oh, as an addition: Why is our own condominium worth less after the measures? I see three factors that work against us here:

[*]We bought directly before the interest rate turnaround. [*]War in Ukraine and rising costs of gas as an energy source [*]The new heating law

We live in an old building from before 1908 and in our opinion have made a real gem out of it. But the topic of energy was simply given lower priority back then.

We live in an old building from before 1908 and in our opinion have turned it into a real gem.

Then just keep living in the gem, you made it for yourselves. If you buy and renovate the new old house, you’ll be back at the same point because an even better old house will appear on the horizon. Keep living there and calmly look for a retirement home with a garden for the furry friend and for yourselves.

That ate up a lot of equity. From today's perspective, co-financing the renovation would probably have been smarter

is the same. You also put equity into financing, and as much as possible. You did it "the other way around," only financing the purchase and then throwing all the equity in. In the end, it doesn't matter.

An unexpected opportunity came up,

I have to be honest: every unexpected opportunity, whether read here on the forum or elsewhere or heard about through acquaintances, is ill-considered and based on some catch. Usually, the property has been on the market multiple times for very unattractive reasons, or the seller is so confused or old that it has never been officially advertised because it is unsellable anyway due to the numbers and condition. Ultimately, it seems that you only pay for a "fantastic location," while the value of the house itself economically approaches zero.

The circumstances and numbers do not sound very attractive, even if you have a liking for self-help work, renovations, and old properties. Even with a 250 sqm plot, there isn’t much garden left once you subtract parking space for two cars and the footprint of the house. Then the core insulation...
115 sqm of living space might be enough, but is the effort worth it if you haven’t just won the lottery?!

You didn’t ask whether you should do it, and besides, there’s no comparison data on how much sqm you currently live in, but I see it as does

Then just keep living in the gem; you did it for yourselves after all.

If you buy and renovate the new old house, you will end up at the same point again, because an even better old house appears on the horizon.

Because whether one can later speak of the dream where one settles down with a semi-detached house with core insulation and 115 sqm / 250 sqm remains very doubtful to me.

Regarding the question itself:
I have had the experience with property swaps myself. The bank’s directive: first sell and see what remains. Only then will the next property be checked as to whether it is approved by the financing bank for a property swap at all.