Is construction financing possible? Please provide assessments.

That the parents contribute 200k and move in in return would have been important information. That makes the project feasible. Just to clarify before saying something more precise: Do you have 250sqm living space plus or including 140sqm basement? So a total of 250sqm or 390sqm? I suspect 390sqm, which would kill the project again, but there would still be potential to plan smaller. Do the parents get a right of residence?

The income is currently approximately 4500 euros net in total

They say monthly net income x100 or at most 110 as the maximum credit limit.

The granny flat is for my parents-in-law; they will sell their house once this house is finished and subsidize us with about 200,000 euros.

How about your parents-in-law joining the loan? Then you could probably finance a significantly higher amount.

I believe the subsidies from the KfW are only available if a professional company carries out the work, or am I mistaken?

: How do you handle this?

That the parents contribute 200k and move in in return would have been important information. That makes the project seem feasible.

Maybe before the bank.
As not exactly high earners, one has to keep calculating whether that is a reasonable amount. We have had cases here where "tight" construction projects are presented by expanding the building with a granny flat because the parents provide amount x for that and may even receive rights of residence in return. It’s unfortunate if amount x doesn’t even come close to covering the production costs and junior is not a high earner anyway.

Therefore the question: how large is the granny flat, do the parents expect any rights, do they pay additional rent (they have to anyway)?

Both have been permanently employed for over 10 years and the current total income is about 4500 euros net.

And what will you do when children arrive? You’re not building such a huge house just to live there alone with the parents-in-law, are you? Then a lot of income will disappear, and at the same time everything gets more expensive. With the loan amounts you’re talking about, you have to expect a monthly rate well over 2000 euros. That’s easily half of your current income. I think the whole thing is calculated too tightly and only doable with further regular subsidies from the parents-in-law. If the deal is that the parents-in-law can live there rent-free for their 200,000 euros, then I would advise against it.

How are the subsidies handled? The KfW pays a few months after moving in, can the money then be used directly to pay down the loan or is it included in the budget?

You apply for a loan for the full amount. After about 2, 4, and 5 years from applying for the loan, it will be checked whether the requirements are met (i.e. documents must be submitted somewhat in advance) and then the loan will be reduced by the repayment subsidy. For many, this happens a few months after moving in, but if you build with a lot of your own work and take a long time... then it can also happen that it only comes after 4 years.

Notary, property tax, and architect have already been paid.

You think so. There will be another big bill for the land charge.

a child is already there.

Ah indeed. If the important information is then scattered throughout the whole thread... But that doesn't change the basic situation for now. The rate will consume too much of the income and the maintenance of the house has not even been considered. And even if it works financially with the help of the [Schwiegereltern], a dependency relationship arises. I would not want that.