What financial options do we have for building a house?

Hello everyone,

We are a small family (with a 2-year-old child) currently living in a rental apartment. We have terminated our current lease at the end of the year because for personal reasons we are moving to Hamburg.

We are now looking for an apartment or a house to rent. For the little one, we would prefer a property with a garden.

For some time, we have been thinking about building our own home or buying an existing property. Due to the relatively high rents we are seeing in Hamburg during our apartment search, our desire has grown to concretize our own house-building plans.

In the first step, we want to explore (a) what we can currently afford and (b) whether it would be sensible, given the (still) low interest rates, to build as soon as possible or save for a few more years.

We both come from Hamburg and see it as our common center of life.

Attached are our financial details:

Net income HE, 33, permanent contract, with current employer for 3.5 years: €4,700 (annual bonus net depending on target achievement: realistically approx. €10,000), secure job, tax class 3.

Net income SHE, 34, employee, 50% position (since parental leave): €1,000, tax class 5.

For our child (~2 years old): €184 child benefit; second child planned in 1-2 years, then instead of SHE’s salary for 12 months €650 parental allowance. Afterwards 50% position, prospectively (in 3-6 years) also 100% position again.

Together with the child benefit, we therefore have a monthly household net income of €5,900. After the birth of the second child, for twelve months €5,550. I would not count the annual bonus as fixed income but possibly use it for special repayments.

Current warm rent €980. Electricity: €70. Internet/phone/mobile: €150. Car/gas/insurance: €500, kindergarten: €250. Mobility: €120. Insurances: €50. Food: €500.

In total, these are regular expenses of €2,620. Additional clothing, travel, eating out, etc., rounded up to €3,000, with retirement provision and reserves: €3,600.

Income: €5,900
Expenses: €3,600

Equity: €40,000 in a daily allowance account + €5,500 in stocks.

From your point of view, what would be a sensible (maximum) financing amount that we should take on given our financial background? From my point of view, we have good monthly income, but little equity. Why? We had quite high costs due to initial investments in apartment/baby equipment, paying off BAföG/student loans (which we have now completely paid off), frequent relocation, many trips. Since the birth of our son, however, our lifestyle has become somewhat more orderly and "calmer".

Do you think it makes sense to use the (still) favorable interest rates for house building, or should we rather invest time in building equity (we don't have much yet) and risk that interest rates will rise in the future? When would be the right time then? Besides purely financial aspects, quality of life also plays a role, and we think that we could improve this with a home with a garden for the little one (and his siblings from the Water Lily Pond). Therefore, we would like sooner rather than later

A suitable plot of land in the location and size we are looking for costs roughly between €220,000 and €350,000. We imagine a detached house with a basement. What is realistic here? About €250,000 to €300,000? So, we would have a demand of €470,000 to €650,000. Would this be feasible in your opinion? Thanks for your assessment.

Best regards,
ativa

From where are you moving to Hamburg? Are you bringing your salary with you because you already work in Hamburg, or does a job change still need to be considered, possibly resulting in salary losses?

My wife already has a new position, I am keeping my "old" job. We do not expect any salary losses. Fortunately, my wife works in an industry where she could almost seamlessly find a new job under similar conditions again.

The first step would probably be to find an adequate apartment or house to rent? Does it have to be directly in Hamburg or also in the surrounding area? The same question applies to building a house.

That's right. Finding an adequate apartment or house to rent is the next step. But it’s basically a different "project." We are focusing our search on Hamburg plus the immediate surrounding area.

What does "as soon as possible" mean? The year and your planned move will be over very quickly. Then the search for a plot, planning... I only see the year 2017 so far.

Exactly. By "as soon as possible," we naturally mean "as realistically as possible," not faster. We will plan solidly and not rush anything.

It seems to me like a rushed desire to build a house during the current search for a rental apartment.

The desire to build a house has been living in us for a longer time. Only with the move to Hamburg are we now living again in our hometown, and therefore we are now beginning to explore our possibilities.

We terminated our current rental contract at the end of the year because we are moving to Hamburg for personal reasons.

Sorry, it reads as if you no longer have an apartment at the end of the year and are now looking for a new one in Hamburg.

Finding the suitable apartment or house to rent is the next step. But that is basically a different "project"

That confuses the reader a bit.

...so that one actually doesn’t really know what you want here.

Maybe sort out the story a bit so that the readers can respond to (the) one question here?!

So we have pretty much the same income and family circumstances, but only had €10k in equity. We got a solid financing for €325k and are paying it off with €1100 per month.

With us, the plot only costs 60k€ and not 220k€. Our house costs 250k€... 170m2 without a basement, normal standard between Hannover and Braunschweig. 660k€ with our incomes would cause me as a layman too much pain right away. It was a similar situation for us... Plot directly in Hannover for around 200k€ or go 30km into the region and pay only a fraction. But everyone has to decide for themselves. Maybe first ask the bank if you can get a loan for 650k€ with your income situation under what conditions and then take it from there.

Well, moving to the suburbs is certainly a smart, if not financial, decision. For the city center, you just have to dig deeper into your pockets, then the topic of building a house with a "normal income" could also become a financial disaster. But that is elementary knowledge.