Pay for the property from existing equity or not?

Dear house-building community!

We are facing a new construction project with total costs for the house and the land estimated at around €350,000. Of this, €76,320 plus 5% land transfer tax applies to the land to be purchased (= €80,136).

For us, the question now is whether we should pay for the land from our existing equity and only then go to the bank to take out a loan for the actual house construction, or whether we should go to the bank beforehand? We are worried that the bank might later say we have no equity left if we have already invested all our equity in the land. :(

Which option would you advise us to take?

Best regards,

GTSport1982

An existing property counts as equity. Just don't take out a loan now, otherwise you will have to pay commitment interest for every month and won't have even started construction yet. Most of the equity used in financing usually has to be spent first. So: pay now with equity :)

Hello

a paid plot of land counts as equity. So no worries.

When is the construction supposed to start? It might make sense to secure the overall financing NOW if we are talking about a time horizon of about 12-18 months. Many banks only charge commitment fees starting from the 12th month.

The interest rates are still favorable. However, construction plans would already need to be available.

I also wouldn’t rule out financing the plot and holding equity for the construction.

Hi!

Thanks for your first answers :-)

Construction will start in March 2014 - completion hopefully September 2014.

The plot will probably have to be paid by mid-November.

Regards,

GTSport1982

Whether you take out the loan now or later - as a rule, your own capital must be used primarily. That means even if you complete your financing now, the bank will force you to pay for the property with your own capital.

I agree with my predecessors. In any case, pay for the property with equity.

1.) You can determine the timing of the loan yourself (important e.g. for commitment interest KfW, speculating on falling interest rates) 2.) If you finance the purchase of the property now (without financing the house costs), you block the land register. There are hardly any banks that accept another bank in priority.

Both points are irrelevant if you think you are now getting a great offer for your overall financing. But even then, you still have to use (at least a large part of) your equity in advance. However, no one can make this decision for you, as we do not know how interest rates will develop in the future.