Is financing a single-family house feasible? Start house construction end of 2023

Hello everyone,

our construction project is already set, the loan amount has been approved by the bank, and the KfW funding (261, new build with QNG seal) has also been granted. Nevertheless, I would like to gather opinions, as I am now getting a bit panicked that we might be overextending ourselves with the house construction and that we have made a mistake.

I am curious about your opinions regarding our project and am sure that you will find some points which would be a deal-breaker for you (e.g. desire for children, residual debt, etc.). Thank you in advance for your opinions!

General information about you:

[*]How old are you? 30 & 33 years
[*]Are there children? No
[*]Are children planned? Yes
[*]What do you do professionally? Project manager in marketing (since 2021), Cyber Security Specialist (since 2018)
[*]Are you employed? Yes
[*]How many hours do you work? 37.5 & 40

Income and asset situation:

[*]What income do you have (net)? €2150 (tax class 5), €5,600 (tax class 3). Total: €7,750 + (bonuses approx. €3,000 per year)
[*]How much equity do you have? €200,000
[*]How much equity do you want to put into the house project? €150,000

Housing costs:

[*]Current warm rent: €1,100
[*]Electricity: €95
[*]Phone, internet, mobile: €60

Mobility costs: Currently 1 vehicle

[*]Insurance: €33 monthly
[*]Fuel: €70 monthly

Insurance costs:

[*]Additional insurance and legal protection: €183.33

Living expenses:

[*]Groceries, care/drugstore, clothing, restaurants etc.: total €820

Savings contributions:

[*]€300 reserves

Other expenses:

[*]Land financing €800

General information about the property:

[*]How large is the plot? 837 sqm
[*]Planned new build with granny flat
[*]Double garage
[*]How large is the house? 170 sqm usable area including granny flat

Construction or purchase costs:

[*]Development costs: paid
[*]Additional purchase costs: paid
[*]Construction or purchase costs: total €685,000

Cost summary:

[*]Total costs: €685,000
[*]Deductible equity: €150,000
[*]Financing amount: €535,000

Necessary loan details:

Total loan amount: €535,000
Annuity loan bank: €282,000

[*]Effective annual interest rate (p.a.): 3.81%
[*]Installment: €1,346.55
[*]Repayment rate: 2.00%
[*]Fixed interest period 10 years
[*]Special repayment 5.00% (planned with €10,000)

KfW loan: €153,000

[*]Effective annual interest rate: 1.84%
[*]Installment: €493.47
[*]Repayment rate: 2.612%
[*]Fixed interest period 10 years, total term 30 years
[*]Repayment grant one-time: €33,250 (already covered by family)

What else is important to know?
The remaining amounts in 10 years are largely already covered by (later) gifts. We know this is a rather unreliable plan.
1-2 children are planned and we know that it will of course get tighter then.
Nevertheless, we still expect some salary increases and want to work full-time again with children or I want to reduce to 30 hours, my husband will stay at 40 hours.
Additionally, there will be €350 monthly rental income from the granny flat each month.

I look forward to your feedback and comments! Many thanks in advance!

I find the plans involving gifts daring or rather very unwise. Even a gift can be reclaimed for up to 10 years in case the relative requires care. That is never certain. Your income is indeed very good, but with the interest rates, it’s not without challenges. I’m just wondering why you don’t pay off more each month (especially with your income) and why you are building a granny flat. Assuming it has 50 m2 of living space and you get €350 per month. That makes a rental yield of 2% (€200,000 construction costs just for the apartment and €4,200 rent per year). With €4,000 per m2 living space and such a small rent, it’s never worthwhile. The money is already lost. Why do you think Vonovia is stopping all new construction projects for rent? At €4,000 per m2 and 4% interest, it is no longer profitable. And with rent of €7-10 per m2, you make a huge loss there. You can already get significantly more return with fixed deposits. Build smaller without a granny flat. Anything else is not financially sensible. You would need to get at least €18 per m2 rent for the apartment to make it worth it given the construction costs. Otherwise, I don’t see any problems with your income, but leave out the granny flat.

I believe you already fall into that category, if not you, then who....

Not that it would be significantly decisive, but on the side:

Financing plot 800€

How expensive was the plot and how much debt do you still have on it? Is the financing fixed or variable?

Hello everyone, Our construction project is already underway, the loan amount has been approved by the bank and the KfW funding (261, new building with QNG seal) has also been granted. Nevertheless, I would like to get some opinions, as I am now starting to panic a bit, that we might be taking on too much with the house construction and we have a cost compilation Total loan amount: €535,000 Annuity loan bank: €282,000

[*]Effective annual interest rate (p.a): 3.81% [*]Installment: €1,346.55 [*]Repayment rate: 2.00% [*]Interest fixation 10 years [*]Special repayment 5.00% (planned with €10,000)

KfW loan: €153,000

[*]Effective annual interest rate: 1.84% [*]Installment: €493.47 [*]Repayment rate: 2.612% [*]Interest fixation 10 years, total term 30 years [*]One-time repayment grant: €33,250 (already covered by family

Please calculate again, because somehow €100,000 have been lost in the writing.

I find the plans involving gifts bold or rather very unwise. Even a gift can be reclaimed for 10 years in case the relative needs care. That is never guaranteed. Your income is indeed very good, but with the interest rates also not negligible. I am just wondering why you don’t pay down more each month (especially with your income) and why you are building a granny flat. Suppose it has 50 m2 of living space and you get 350€ per month. That makes a rental yield of 2% (200,000€ construction costs just for the apartment and 4,200€ rent per year). At 4,000€ per m2 of living space and such a low rent, it never pays off. The money is already lost now. Why do you think Vonovia stops renting out all new builds? It no longer pays off at 4,000€ per m2 and 4% interest. And at a rent of 7-10€ per m2 you incur a huge loss. You can get significantly more yield with fixed-term deposits. Build smaller without a granny flat. Anything else does not make financial sense. You would need to get at least 18€ per m2 in rent for the apartment to make it worthwhile at the building costs. Otherwise, I see no problems given your income, but leave out the granny flat.

We are building the granny flat because my husband’s grandmother will be moving in with us. We also deliberated for a very long time about whether to build with a granny flat but ultimately planned it because of the double KfW loan with lower interest rates (for two residential units). The apartment will be built with 30 sqm and the rent can definitely be set higher – just maybe not when it’s the grandma, but definitely later.

The reason we are not paying down more each month is that we still pay almost 750€ monthly for the land (remaining amount 100,000€, installment 723.33€ at an interest rate of 1.37%) and thus we have almost 3,000€ per month in installments for the house and land combined.

I think you already fall into the category, if not you, then who....

Not that this would be particularly decisive, but on the side:

How expensive was the property and how much debt do you still have on it? Is the financing fixed or variable?

The property was 257,000 euros, 100,000€ still to be paid off, the installment is 723.33€ monthly (can still be adjusted) and the interest rate is 1.37% with an interest lock-in of 20 years