Is building a house feasible? We are totally uncertain...

Hello everyone,

a brief update on our current situation. Our landlord has given us notice for the end of the year, and now we are looking for a new place to live. In this context, the question arose whether we should maybe build something ourselves so that we have a secure home in old age. It’s me (32) and my partner (33). We don’t have any children yet. I have a degree in computer science, my partner is a commercial employee.

At the moment, we are both somewhat desperate because we don't see any way to manage this whole thing... unfortunately, we also lack the experience. Plots of land between 500-600 m² cost around 80-95k EUR here in Saarland. We had picked out a Weberhaus (Balance 300), which would cost another 220k. Plus a double garage ~10k. So we had calculated a financing of 350k... quite a lot!

Together we both earn about ~4000 EUR/month + 13th salary each. Currently, I am at the point where I wonder how anyone can even build a house nowadays without financially straining themselves. I finished my studies in 2007, and I didn't have much money left from my parents. So I first had to build something up for myself, and my car also broke down. There wasn’t much room to save equity. While we could manage to save 20k equity by the end of the year, that wouldn't really help much with a 350k loan. Currently, we pay ~800 EUR rent (warm, including electricity) and have 300 EUR/month for groceries etc. That’s completely enough for us—I would describe us as relatively frugal. At the same time, I manage to put about 1200 EUR aside monthly with the current fixed costs. I haven’t done anything for retirement provision yet, since the question of building a house has been on my mind for a longer time and probably currently represents the best retirement provision. Nevertheless, our project somehow seems unaffordable to me. Can you help me? I would be glad about opinions, tips, etc.

Regards Michael

We are aware that we will not have the house built by the end of the year. Therefore, we are currently looking for a suitable rental apartment. However, we want to work on the project in parallel so as not to keep wasting rent every month. Perhaps an interesting point: the current basic rent is about 600.- EUR/month.

Hello Michael,

yes, I know that. In the last two years, we have also become aware of what a "hereditary society" we are! There are people whose parents don’t have much and who somehow manage to complete a good school education with university studies and then stand at 28 without any equity and have to pay back Bafög and so on first. And then there are people who can quickly hope for a lot of money from dad or even a whole piece of land and whose children then get even more money... but that should not be the topic

I think the crucial question for you is whether you can always count on 4,000 net. How will you work (be able to work) when you have children? Basically, 4,000 net is not so bad and you would have to ask yourself who can even afford to build then!

I would approach it like this: Think carefully about how much you can pay off per month and how long you want to repay. I would say 1,200 euros per month as a repayment rate would be realistic. Ultimately, only you can answer that yourself, but with 13 monthly salaries of 4,000 net, that should work. With a quick calculation using a loan calculator, you should come to a loan amount somewhere between 320,000 and 330,000 euros for a term of 30 years (depending on the energy standard of the house and possible funding programs). If you then save 20,000 as equity over the course of the year, you are in the required range.

Consider the following as well: The loan will probably consist of several components. For example, for an appropriate heating system, energy-efficient living/building, etc. Some of these components can be paid off relatively quickly with one or the other special repayment, so their share of the rate will eventually fall away. Our example: We pay a rate of 1,600 euros. Among this are a land loan of around 200 euros and a subsidized loan for the heating system with 80 euros. Although it’s nonsense interest-wise, we pay these off first, so that our rate will be 280 euros lower in a few years! Or we take this money and increase the repayment of the other components accordingly... Time will tell!

The biggest problem for you will be the same as for us: In the coming years, if children are planned, the rate will also be higher. In 10 years, it will then – depending on follow-up financing and salary increases – maybe be more relaxed in real terms. I would create a spreadsheet for the next 30 years and compare a realistic salary development (1.5% salary increase per year on average?) to the rate.

Only lastly: Currently, interest rates are low! Financing that "just barely works" now could become a real problem in 10 years with double the interest rate and little repayment in the first 10 years!

I know your situation all too well. We were in the same. Same age, just both with engineering degrees. However, I have to ask what you are doing with your money? With 4000 € net, you should easily be able to set aside 2000 € based on what you have stated, if you want to. But well, so be it, I can understand that you want to live first, and the train has left the station in this regard.

The interesting question is what you earn alone, because if you plan to have children, then sooner or later one of you will have to stay at home. For us, that is my wife, and thanks to parental allowance, it is currently working quite well. But what happens after 12 months? The person who takes care of the upbringing then only works half a day, and probably a costly daycare will have to be paid for. That means that probably not even 500 € net will be left. That is exactly when it gets interesting because then the other income must be enough to cover the loan. For us, that will be mine. Although during this time we pay down a minimum of about 1000 €/month, this only applies for a few years. We also have a high right to special repayments. From that perspective, we are on the safe side. Should a second child follow at some point, it will be even tougher. Then my wife's parental allowance will shrink from the current 1800€ to maybe 300 € or just a bit more.

Regarding your consideration: If you build similarly to us—we planned and built a prefab house with 150 sqm and a few extras—you will probably end up with a 4 at the front regarding the plot prices. Looking back today, we could have saved nearly 50,000 if it had been necessary. But you have to allow yourself some luxury.

The price the provider gave you is probably the initial offer price. Expect that quite a bit will be added on top. It was no different for us. First price 190,000, then we added 15,000 € in extras (bay window and ventilation system), and after architectural planning and sample selection, the price on the list was 225,000 €. Not turnkey, so another 10,000 € for floor coverings and wallpapers as DIY. In addition, we had 40,000 € in ancillary construction costs. (10,000 € of those were development costs that came as a surprise.)

Two things will make it difficult for you: First, the lack of equity, although you will certainly get a loan of 300,000 €. Second, the time. You have to move out by the end of the year... your prefab house provider probably cannot deliver a house that fast. We signed in December 2011 and moved in two weeks ago. The house was up after 2 days, but then followed 3 months of interior finishing and drying. And waiting times at prefab house providers are sometimes very extreme. Which of course suits the banks. I curse every month when I see what we pay in commitment interest for the ridiculous remaining balance. We had these interests free for 12 months, but have been paying them for 3 months now, and the interest rates here are higher than the loan interest.

I hope this helps you a little. If I were you, I would rent something cheap and then save like crazy for another 1-2 years. I can also say from my own experience that finishing a house inside with an infant is not particularly enjoyable, and even now shortly after moving, our little one is quite unsettled. (He is now almost 5 months.) Also, the triple burden of house, child, and job was no fun. Once it’s behind you, it’s great, but during it I often swore and begged for a nap.

Be careful please!! You have forgotten an important item - or I missed something! Where are the additional costs?? Calculate about 70,000 more for that (tax, earthworks, connections, garden, access paths etc. etc. and of course kitchen and moving (are floors, wallpaper, plaster already included??). And: Don’t forget with all the calculations that the ongoing additional costs (garbage, electricity, water, insurance...) are somewhat higher than in your rented apartment. Accordingly, take your cold rent plus all the allocations and then compare with the loan plus increased allocations. And, yes, your preferred provider is expensive. But don’t think that a “cheaper” provider will really be significantly cheaper in the end. How about a condominium instead?

I think the crucial question for you is whether you can always count on 4,000 net. How will you work (be able to work) when you have children? Basically, 4,000 net is not so bad, and one would really have to ask who can even build then!

Exactly these questions we asked ourselves as well. For my part, I am only 32 now and have a gross annual income of about ~58,000 EUR/year. I think that should still increase somewhat over the next few years. We made a calculation according to which we would pay about ~1,400/month (cold) for loans. Then we would still have our 13th salaries + I currently could save about ~600 EUR/month on the side. So we would come to annual reserves of about ~9,000 EUR. But since I have no experience whether that is a lot or too little, maybe the question to you...

Just lastly: Currently interest rates are low! A financing that "just works" now could become a real problem in 10 years with double the interest rate and little repayment in the first 10 years!

Meaning "now or never"?

Also consider the following: The loan will probably consist of several components.

I found the following about that: There is a 50,000 EUR subsidy from KfW for new construction projects of energy-efficient houses. Has anyone had experience with that? Also a loan for photovoltaics. Additionally, there is a subsidy in Saarland:

[*] up to 30% of the total costs (max. EUR 500.00 per sqm of eligible living space, EUR 400.00 per sqm for carrying out significant construction measures)

at 1.90% p.a. nominal, which I think would be interesting for us.