No 100% payout on the property?

Hello dear house building community, I am new to you and would like to briefly introduce myself. My name is Kai and my wife and I are planning to buy a beautiful property with an old building, which I will have to demolish. From the basic financing perspective, we will not have any problems. Equity capital is sufficiently available, but not enough to purchase the property and pay all incidental costs. Now I am unfortunately facing a problem that I don’t know how to solve. I plan to arrange financing for the entire project. That means house construction and land purchase in one financing. However, the property is not related to the builder. I found the builder separately, so the real estate transfer tax will only apply to the land. In total, we are talking about approximately €470,000 in total costs. The land accounts for €200,000 purchase price plus incidental costs. Of course, I would like the bank to pay 100% of that to save my equity capital for demolition and incidental costs. Now, however, my advisor tells me that except for my house bank (which has poor conditions), no one is willing to pay out 100% for the land and then the rest minus equity capital during the construction phase next year. At most, Ergo would be willing to pay out 60% for the land. That makes no sense to me at all..does anyone of you know this? Or do you know banks or insurance companies that pay out 100% for land without me having to immediately put in my equity capital? Many thanks in advance for your tips. Kai

Why should the bank provide advance payment and you keep your equity back? It is normal and common at almost all banks that the equity is contributed upfront = at the beginning of the measure. What exactly is your problem?

My problem is that they don’t say give me all your equity and we’ll do the rest, but instead pretend that I have to pay 40 percent of the property, which I cannot afford including ancillary costs. Therefore, with 25 percent equity, I am not able to finance. Maybe I am also making a mistake in my thinking.....

I believe there is a misunderstanding. Did you include the equity you want to use in the financing? If yes, you must first spend this equity before you receive the loan. The equity should not be your entire financial resources under any circumstances. A good portion should definitely be retained and not included in the financing. If you are now financing the plot of land, why wouldn't the bank pay for it? To me, it sounds like you included the equity you might have available next year, since you apparently don't have it yet.

Probably your request was not communicated correctly to the bank(s). For a pure land purchase, I would also require at least 40% equity + incidental costs as a bank in order to remain within a secured loan. As a complete project with purchase and subsequent construction phase, it is not normal that 40% equity + incidental costs must be provided solely for the land purchase. Here, the equity agreed with the bank for the overall financing is contributed at the beginning. The remainder of the purchase price as well as the construction costs are then financed from the loan.

I only know it this way too, that you first have to use your equity capital. It's a bit annoying, but unfortunately, you probably won't be able to prevent that.