Pay for the property completely by yourself?

Hello everyone,

if everything goes smoothly, we will acquire a community-owned plot of land in the next few days/weeks and start building there with a general contractor from autumn.

According to the current status, we would have to pay for the land from April/May, and construction would then begin at the end of this or the beginning of next year.

We plan to contribute 20% equity for the total investment. However, this amount would not fully cover the land; nearly 20,000 would still be missing. We could cover the remaining amount from our own funds, but then our cash buffer would be severely reduced.

Therefore, the question now is whether it generally has advantages to finance the land completely with equity or if it actually does not matter for the total investment?

How would a construction financer view this later on if we do not contribute any equity for the house construction, as we have already fully invested it in the land?

Thank you for your help.

Is the property not considered as equity?

Hello, it can be done, the advantage is that you have time to calmly look for a bank. Often, the construction sum is not known. The disadvantage is that your buffer for contingencies is gone. And equity capital must always be used first; later, withdrawing something from the loan will be difficult.

How does a mortgage lender see it later on when we no longer contribute any equity for the house construction at all, since we have already invested this completely into the land

Purchased land is considered equity

And equity must always be used first, it will be difficult to pay out something from the loan later

No; you just have to clarify this in advance; because it affects the loan-to-value ratio. But normally it is not a problem to reserve part of the equity that you need for furniture/kitchen etc.

So now the question is whether it basically has advantages to finance the property completely with equity or if it is actually irrelevant for the total investment?

How does a construction financier see it later on when we do not contribute any equity for the house construction at all, since we have already completely invested this into the property?

Thanks for your help.

We also initially financed our property ourselves. It was important to us that the bank only comes into play as late as possible (commitment interest). However, I have not been able to recognize any other advantages from this. Possibly, as a customer, one might be somewhat more interesting to the general contractor or prefabricated house provider if the property is already "safe," fully surveyed, and the soil report is available, and it just waits for construction.
One should always keep an emergency fund either way, whether the property is completely or only partially self-financed.

We would also not contribute our entire amount, but rather borrow money interest-free from the parents, if it would bring significant advantages to fully finance the property.

How far in advance can one actually conclude a construction loan without incurring [Bereitstellungszinsen]? Interest rates are currently still very interesting – who knows how that will be in autumn.