Is financing theory practical?

Hello everyone

My better half and I have been considering for about half a year whether to build a house together. Since a development area is currently being opened up in our dream location by chance, our considerations are becoming more and more concrete. We are aware that this project is not a sure thing given our financial situation; some might even say we're crazy. Nevertheless, I would like your assessment of whether the plan would be feasible.

She (25), teacher trainee, income €1,200 until 08/2017, from 09/2017 €2,700
I (25), industrial engineer, income €2,400

Equity: €10,000

The plots we are interested in are between €145,000 and €180,000. The development area has a building deadline of 6 years (+grace period).

Our idea was, if we were allocated a plot, to finance it completely and repay it within the 6 years.

At €145,000 and 2% interest, that would be €2,168 per month; at €180,000 correspondingly €2,690.

We would like to split the financing 50/50. My current monthly savings rate is €1,400, my girlfriend’s about €500. Fortunately, we have support within the family who would cover the missing difference for my girlfriend until 09/2017. The incidental acquisition costs would be paid from the equity.

So, by 2022 we would have paid off the plot and could meanwhile extensively plan the house, etc. With a stable salary structure, we would have a net income of at least €6,500 in 2022 to repay a loan for the house construction.

Is this plan completely crazy, or how would you evaluate this project?

The problem will be that you might not get the financing approved with these framework conditions.

<------ Banker

At the bank, we calculate the household budget rather conservatively - especially since the new residential real estate loan directive (since 21.03.2016). For a 2-person household, we would apply corresponding flat rates for living expenses, car, etc. With your income, there would then basically not be enough left over for the installment you have planned.

Otherwise, of course, the question remains how your further future planning looks, especially the topic of children. Your income is certainly not bad. But whether it is enough if your wife significantly reduces her working hours because of a child (or vice versa, depending on how you plan it) is another matter. However, the bank would have to ask about this at the latest when financing the actual house construction and include it in the calculation. Because according to the new residential real estate loan directive, the bank must ensure over the _entire_ term of the loan that the installments are affordable - that is, with all foreseeable events (child, child moving out, retirement, ...).

In short: From my point of view, calculated too optimistically, it probably won’t work out that way.

The building obligation would stop me. Who knows what will happen in 6 years.

Better save equity, enjoy life with the rest, and then in a few years, with m/m TEUR 100 equity, take another look at whether you can build in the region and whether you even want to at all.

I am not a bank nor a banker, but it is obvious that you will not get financing. You have to have something left on paper for the bank and of course also in reality to live on. Additionally, in a new development area there is often (actually always) a building obligation to build within the first 5 years. My personal opinion: first both settle into professional life and enjoy what you have at the moment. This also applies to income. Furthermore, I find the cost of the building land too high for your circumstances. Also at the end of 2017, when your girlfriend should start receiving her calculated income.

As a banker and father, I can only agree. We first enjoyed, and now the children are enjoying us^^

You don’t have to force anything. Especially with a building gap like that, then you build and as a latecomer you somehow always feel like an outsider

if you don’t want to build for at least 6 years anyway and can easily save 2000 euros a month in the meantime, why bind yourself to a plot of land now? I don’t see any advantage in that. There will still be plots of land in 6 years. You might want to move somewhere else by then, and then you have a plot of land you’re stuck with. Which might only be sold at a loss. I would think that through carefully.