The first step has been taken today

Good evening everyone,

we registered on the forum today and are just at the beginning of our house-building plans. We live in Bremen and want to build in the surrounding area.

Today we first went to an independent financial advisor, who also financed my brother's house and, back then, my parents' house. I have just finished my studies and we now have a net income of about €3650 in total. We are both 29 years old – before my studies I also completed vocational training and gained work experience.

I was actually only there because I am, of course, aware of the extraordinary interest rate situation and asked whether we should save up to build equity or rather take advantage of the low interest rates. The answer was quite clear in this case that with €20,000 equity we can easily get a construction loan of €220,000 and that we have an exceptionally good interest rate situation. The share of KFW in the possible loan is €100,000. The effective interest rate for both loans together would be 2.79%, we would repay Kfw at 4.35%!!, the bank loan (€120,000) initially only at 1%. Fixed term initially 10 years.
The monthly rate would then be €958.31.

That seems manageable monthly as well as extraordinarily favorable to me.
The whole conversation was, of course, just for information at first because all further steps (house type, construction company, plot, .....) now first have to be examined and clarified in order to know the actual financing needs.

My question about this is basically only whether we have actually received a good (non-binding) offer and whether you also think that in our situation it makes sense to build sooner rather than later, despite the low equity share?

Many thanks.

Oh dear... someone was really badly advised. First of all, you need to know some things about loans, or rather where the low interest rates come from.
A bank finances you a cheap loan up to 60% of the house value. Here the risk is the lowest. Your advisor probably assumes
that the house will later have a value of 350,000, which including the land, etc., can approximately approach the actual amount.
If you don’t want to build a terraced house, you definitely have to reckon with that. The question is, where do you get the missing 130,000 from? If a bank at all finds to play along, it will be expensive, because this bank will be registered second in the land register and thus
has hardly any chance of getting its investment back.

Now about the financing: 2.79% sounds GREAT at first. But what will you do after 10 years? What happens if interest rates rise again to 7-8% like 10 years ago?
Then your monthly burden will certainly be 2,000 € for the house. And you would have to earn a lot more. Children are a big topic:
We are also currently expecting offspring and can already calculate how much money will be left when my wife goes on maternity leave
and takes a parental year. After that, she will return at only 50%, and we have additional childcare costs. You have to consider all that.
Your advisor completely failed if he only offered you 10 years. You should fix the rate for at least 20 years at these low interest rates. Arrange special repayment rights and start with at least 3% repayment within the first 3-5 years. Otherwise, at the end of 20 years you will still have an outstanding debt of 150,000 and will have to repay the loan for a total of 40 years.

But in the end none of that really matters. You are starting the wrong way round. First determine the costs, then go to the financer. If you don’t know what it will cost, you won’t get good offers either. And get equity, only if you are well positioned there, you get “exceptional” and “extraordinary” offers.

Write what your calculation of the 220,000 € is based on, or how you believe you can build a house with it. You can forget the 20,000 € equity in all your calculations, because you should urgently keep that as a buffer in reserve. A building will always be more expensive than planned... always.

Thank you first of all for the detailed response – that is exactly how open and concrete I had imagined it.

I set the maximum of €230,000 for the house including the plot of land south of Bremen because friends of ours also recently built there and stayed within this range – in Bremen itself, that would only be possible for a terraced house.

Regarding the financing:

A term of 15 years was also offered, then we arrived at an effective interest rate of 3.07%. Of course, we first need to determine costs – that is clear to me – but this preliminary discussion was important to me to hear where the monthly payments could end up and what the current interest rate situation is like. We now have several talks with building companies, some with plot + house. We are simultaneously searching for suitable plots around Bremen.

The issue of rising interest rates and possibly having children is exactly what concerns me as well – in the medium term, the ECB will certainly return to its strict monetary policy and then we are talking about completely different values – therefore, I would also feel more comfortable with 20 years, because then I can assume that I have advanced professionally and my wife can at least work part-time again.

Interview your friends again carefully about what they paid. 230,000 for a house works. But with land, I can’t imagine that.

We have a plot for 150 €/sqm which is a bargain near us. We received an offer from a prefab house provider: turnkey for 100 sqm living space for 160,000. With that, your budget would have been enough. However, that price does not include the exterior landscaping, earthworks, or a garage, and the plot would be at most 400 sqm. We don’t even talk about a basement at this point. For a well-built house, you have to calculate about 1300 - 1500 € per sqm of living space. And 100 sqm is really not much when it comes to a house.

Regarding loans: don’t be fooled by advisors making you believe in an average interest rate through KFW. Especially since you also have to invest quite a bit to even qualify for KFW loans. For us, those were additional costs of almost 15,000€. With such a tight financing plan, say goodbye to a fancy kitchen, fancy bathroom furniture, and a Swedish stove. These items hit the budget hard. We started at 190,000 € for a house with 140 sqm and are now almost at 230,000 due to floor plan changes, ventilation system, Swedish stove, and so on. The first price mentioned is just a rough estimate.

Since we are in a similar situation as you (a bit older), I know you can save around 2000 € per month. Maybe wait another year, move into a cheaper apartment, and save maximum equity. After that, you can build a really beautiful dream house... what you can do now is a compromise in which you will live the rest of your life.

Another tip I can give: it worked wonders for us: ask your parents. Maybe you can invest the inheritance share sensibly before they pass away. Especially now when the savings account is slowly becoming the best investment, many older people are thinking about what to do with their savings. It was a difficult step for us because you want to manage it on your own, but when it comes to building, false shame has no place.

Thank you very much for the second response - we will take this up again - fortunately, no one is pressuring us at the moment.

We are in the comfortable situation that we currently hardly have to pay any rent (including additional costs €300) and can actually save quite a bit of money this way - but the annoying feeling remains in the back of our minds that we are missing out on this period of great interest rates.

If we assume that we want to build a house, which here in the Bremen surrounding area would then perhaps cost around €300,000 including the land, how much equity would you save up?

May I ask in which region you are building?

Thanks again for the great tips.

And one thing is certainly true:

Of course, you want to make as few compromises as possible; I want to have my house at least "prepared" enough so that I can still, for example, install the fireplace later, etc...

Once again, thank you very much, thanks to you we have definitely been greatly enriched in our considerations.

Then for your information, I just spoke again with our friends:

Plot of land 1100 m2 - €58,000 including additional costs
I have also found some other plots in this price range
In Bremen, thanks to the train, you can get there within 13 minutes.

What is actually interesting are the regional differences, I took a look, Bremen’s surrounding area seems to be pretty much the cheapest in the old federal states.