Planning our home financing

Hello everyone,

We have our first preliminary meeting for the financing next month. To prepare, I would like to get your assessment of whether my ideas will work. Since the conversation will be with my father, I have some concerns that he might handle me with kid gloves. So feel free to be honest (but you usually are anyway ). Sometimes I am too optimistic or can’t see the forest for the trees.

About the income:
I earn 2,500 euros net as a civil servant (plus travel expense reimbursement; from mid next year 2,700 euros; private health insurance already deducted)
He (32) earns 2,000 euros net (plus expenses, company car already deducted)

Expenses: 480 euros cold rent
In total, about 2,300 euros regular expenses (excluding my car costs, since I get reimbursed for those).

We currently have 25,000 euros equity. Optionally, I could also contribute a Riester pension of 13,000 euros. Since the last wedding bill was paid last month, we want to save 1,700 euros a month for the house. This month it will be over 2,000, but that varies.

Since the question about the low equity will come up: last year, our equity was pretty much cut due to a necessary move including a new kitchen. Then the wedding, car purchase... you know how it goes.

Our plan:
We want to buy a plot of land by the end of the year. Including ancillary costs (8%) we are at 100,000 euros. I would initially finance this separately.
Development must take place within three years. Since I am impatient, I would like to start in fall 2019, but at the latest spring 2020.
The plot would be financed variably or fixed for a certain period depending on the interest rate (then rather spring 2020).

With our saving rate, we would have at least 35,000 euros by the end of the year, of which 5,000 euros are in a home savings contract. Should I only pay the ancillary costs of the plot (rounded up 10,000 euros) with the equity or put in as much as possible?
My idea is to pay off the plot with 1,500 euros monthly. Then a few hundred euros per month remain for a general reserve. Or better a small installment and save more cash?

According to my calculation, we would have equity of 47,000 euros including the paid-off plot by early 2020. Is that enough or should we better wait with the construction? Possibly plus the Riester pension to increase our equity ratio.

My husband might change jobs. He would then have at least 500 euros more net, but no company car anymore. For the necessary second car: should we rather pay 10,000 euros cash or finance it in installments over the increased income?

Thanks for your help! Sorry for the long text. If I forgot anything – feel free to ask.

Hello Lenschke,

Congratulations on the wedding and the very well-organized planning.

The variable loan can be a good idea in principle; however, if you choose a reliable banking partner, this loan can also be drawn long-term, but then you should be certain about the banking partner. In the latter case, interest rate increases, if they occur at all, would not have a negative impact.

The use of equity in the variable variant will be rather irrelevant since the variable interest rate rather is not loan-to-value dependent, meaning most banks have a uniform variable (which is usually lower) interest rate, but this would have to be checked individually.

The use of equity with the fixed interest rate should be as much as possible since this is then dependent on loan-to-value (in relation to the financing amount and the value of the land) and thus secures the more favorable interest rate in the long term.

The repayment with the variable interest rate does not really matter in principle because the loan will be redeemed anyway, and the value of the land always stands as collateral, and this difference reduces the loan-to-value ratio for the entire financing amount. Whether the equity is then tied up in the repayment of the land (and the value created thereby) or exists in cash does not play a decisive role with regard to loan-to-value.

With the fixed interest rate, I would not repay the financing funds too quickly because you would be paying off cheap money, and since further funds may be needed, which might possibly be more expensive due to interest rate developments, I would prefer to take out new funds in a reduced amount.

Here, the offers and individual preferences (whether you want to select the market regarding the best interest rates or only consider a small selection of local banks or even just the house bank) will show which variant, variable or fixed, is the most sensible.

What I didn’t quite understand is the statement...

According to my calculation, including the paid-off land, we would have equity of 47,000 euros by early 2020.

Why or from what should the land be paid off?

The consideration regarding Riester to increase equity should be well thought out and can only be considered if you also bring a Riester expert to the table regarding financing design. Personally, I recommend keeping Riester out of real estate financing, but that requires a separate discussion.

All in all, it should be noted that a fundamental assessment of the overall project in relation to your financial or discernible basic initial situation is only possible if it is known how expensive the house is supposed to be, or at least if there is a statement about the expected total investment sum.

Looks reasonable to me at first. The important question, however, is: What kind of house do you have in mind? How big should it be and what does it "have to" cost?

Hello, I agree with readytorumble. What is the budget for the new house? You 29, married, building a house (nest) and then? Child? 1? 2? Have you also done a personal financial plan here? Worst case, you have a plot, but cannot manage the house because it is supposed to cost €800,000 (this is just a fictional exaggeration).

Regarding the use of equity for the plot. You should keep as much equity as possible as a buffer. A lot can happen during a new build, refinancing is expensive. Of course, you should consider which equity ratio makes sense because of interest, etc. But if you now go all in with equity into the plot, you won’t get it paid out in the main financing. In other words, equity that was named in the total financing has priority for use. Whether you can still save significantly during the construction phase is something only you can judge. You already have double burdens with the plot financing.

I didn't quite understand the statement....

According to my calculation, we would have equity of 47,000 euros including the paid-off plot of land by the beginning of 2020.

Why or from what should the plot of land be paid off?

That would be with a rate of 1,500 euros for the plot of land. As soon as the construction project starts, I would include the plot of land in the overall financing. Otherwise, there could be problems with the ranks of the land charge in the land register. If I am not mistaken, what I have paid off so far on the plot of land plus the additionally available money should represent my equity.


The house should be simply designed: rectangular, gable roof, about 140 sqm living space. For simplicity, I have calculated here with 1,800 euros per sqm (Energy Saving Ordinance 2016 standard, gas heating, relatively affordable residential area). There is already a buffer included in the ancillary costs. Here we have only flat land, so probably little earthworks. In the directly adjacent building area, there were at least no problems with the plots (basically the same soil).

We try to keep interest rates as low as possible since we do not have ample equity. So many outdoor facilities we do ourselves, possibly finishing the upper floor ourselves. There are no children yet.

Hello, I agree with readytorumble. How much is the new house supposed to cost? You 29, married, building a house (nest), and then? Child? 1? 2? Have you also made a personal financial plan here? Worst case you have a plot of land but can't afford the house because it is supposed to cost €800,000 (this is just a hypothetical exaggeration).

We have thought about that too. During parental leave, I would have a parental allowance entitlement of €1,800 (children planned only in a few years). Since I mainly work from home, part-time (around 60%) is also quite possible. My husband also works from home a lot. As a civil servant with a family allowance and child benefit, childcare spots can also be paid for well. The parents also live locally. Basically, the overall financing is planned with an income of only €4,000. In good years, we then make special repayments. I don’t want to go part-time for long.

I hope to manage the financing with a monthly payment of €1,200. But I still have to calculate that in detail once the offers are available.