We are beginning to plan the construction of our house

Hello everyone,

soon I would like to start planning our house construction with my partner. Currently, we are making initial considerations and have been recording living expenses for some time. I would like to know your experiences regarding financing/ equity etc.

At the moment I am wondering whether we can afford to build a house in our situation.

The following situation applies:

I am 26 years old, mechanical engineer in permanent employment, income approx. €2100 net
She is 26 years old, industrial clerk in permanent employment, income approx. €1600 net.
(In case of a child, 2 years at home)

Total income: €3700 net.

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As equity, we have the plot of land: 680m2 worth approx. €40,000

Total equity: €40,000 (if that can be assumed)

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Reserves: approx. €10,000 (we want to keep these for contingencies, e.g. car etc.)

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Planned is a 1.5 - 2 storey house according to the Energy Saving Ordinance
solid construction
double garage
own contribution: floors, painting, installations etc... helping with roof tiling, masonry etc., as it is usual in the countryside.

estimated construction cost €250,000

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monthly repayment: €800-1000

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Now to the question:

Your opinions on the ratio of equity to construction cost. How do you assess the project with our income etc.???

Thank you for your help

You are welcome to browse a bit through the existing posts. A lot (actually almost everything) has already been written about the topics of full financing, equity, and ancillary construction costs. The property of course represents a solid security for the bank, so it has a very positive effect on your interest rate in terms of equity. The ancillary construction costs (e.g., €25,000-50,000) are usually covered by equity and not through financing (loan). Without equity, you are not doing yourself a favor by embarking on a house construction of this scale. My first tip to you: Start saving!

Thank you for your response.

However, I have a question. Maybe I don't understand the system correctly, but what is the difference between having €40,000 in cash somewhere or using the money to buy a piece of land? People always say that land can be used as equity.

Because the €40,000 didn't just fall at my feet either.

Thank you.

I will quote from the following thread ( ):

As a rule, the lending value is usually 20-30 percent below the current market value. In this way, the credit institutions create a safety margin to take on as little risk as possible when granting the loan. This results in the lending value of the house or apartment amounting to only about 80 percent of the actual construction costs or the purchase price.
For up to 60% loan-to-value ratio, banks offer top conditions, and up to 80% good conditions.

In the thread, we discussed which costs are regarded as value by the bank and which are not. A few examples:
Property transfer tax – You have to pay this from your own capital and it does not represent value for the bank
Fitted kitchen – Can sometimes be financed, but does not represent value for the bank
Bonsai trees in the garden – Can possibly be financed as part of the exterior landscaping, but may not represent the value for the bank that you paid

If you built your house for €250,000 (including notary, structural engineer, phone connection, builder’s insurance, etc.) and in your opinion it is worth €290,000 including the land, it is worth only, for example, €230,000 to the bank. So, if you received a loan of €250,000 (practically impossible), your debt exceeds the value of the property significantly. That means, in the event of default, the bank loses money. Since banks do not like losing money (except on speculative capital markets), a bank will only give you a loan of €230,000 and that at a poor interest rate. Only with a loan amount under €185,000 can you expect reasonable interest rates (as advertised on the usual finance portals).

Okay I understood that.

Now I have two questions again:

1.) How do those among us who, as is often the case nowadays, fully finance, i.e. buy or build a house without equity, do it?

2.) If we stick to your example calculation, that would mean I am missing around €20K equity to reach my €290K with a loan of €230K. Are the interest rates really that bad for this loan amount? If I were to assume that I want to get the "better interest rates," I would have to bring €65K equity + €40K land to finance the construction project. Who today brings that much equity if they don't want to build only later in life or get it from somewhere. And I know many "young people" (25-30 years old) who built without having been given much money as a gift.

Thanks again for an explanation

1.) How do those of us who, as is increasingly common nowadays, fully finance, meaning buy or build a house without equity, do it?

Wrong. That is more the exception than the rule. Thankfully. I don't know anyone who built a house in their mid-20s. In my circle, people are in their mid-30s. Usually, they have saved for a long time. That's how it should be. Of course, there are many who get money from parents or inherit and therefore can be younger. But I wouldn't call that the rule either.

Regards, Steffen