What financial options do we have for building a house?

So, when we finish building the house, we really have to watch our money. Shopping is done according to the meal plan, vacations are initially only in the form of day trips, and the newest Thermomix just won’t be under the Christmas tree. But we don’t feel restricted. Why? Because our priorities are clearly in living comfort. In our area, you pay 1300 €+ OpenEnd for a 90sqm apartment. We’d rather invest that in our own home. And since we both have just started our careers, we have plenty of room to grow. It’s all a matter of priorities. One person already gets short of breath if they can’t make their two Mallorca trips anymore, the other only when they realize they can only afford to eat pasta for the last three days of the month. We are relaxed, with far less income than you (4300 net total...still)

Thanks already for your assessments. That was exactly my concern -- to gather opinions.

Thanks for your contribution. I get the impression that you wouldn’t go ahead with the financing at my place at this point in time. From your point of view, what would be a good plan given my (described in the opening post) starting situation?

Your income is quite good, and I would definitely and with full throttle save more equity. We would have liked to build in 2011 as well, and in 2012 we also had a nice plot of land in prospect. But at that time, we only had about 50k equity and therefore didn’t go for it. Here is my contribution from 2012 * Now we are building in 2016. In recent years, we have saved very disciplined and also given up one thing or another. Speculating on the interest rates can always go wrong; we were lucky even though we didn’t sign at the lowest point. But I can live very well with under 2% over 15 years.

Definitely don’t make the mistake and let yourselves be stressed because of the interest rates. I hardly believe that in 2..3..4 years interest rates will be significantly higher. And even if it is then 3 or more %, that will probably affect land and construction costs (somewhat).

Regards, Steffen

* just looked it up myself again. The originally planned 150k EURO for the plot unfortunately turned into >300.. quite naive after all.. Pff.. however you do it...

Your income is pretty good, and I would definitely save up as much equity as possible, full throttle.

One should never forget that there are a few opponents when it comes to saving.

Example calculation:
Construction project including land: €300,000
Current rent costs: €700
Savings rate per year: €10,000

Construction price increase p.a. 3% = €9,000 (Energy Saving Ordinance, inflation, etc.)
Unnecessary rent costs 12x700 = €8,400
Unnecessary costs = €17,400 p.a.

Of course, you save interest later, 30 years fixed interest at 2.6%
You save about €5,000 interest per €10,000 equity
That means I save €5,000 by saving one more year and at the same time spend €17,400

In my opinion, in most cases the unnecessary costs are higher than what the construction loan would cost.
For me, it is clear: whoever wants to build and does not invest more than 40% of their net income into the house SHOULD DO IT!

: Everything is correct. However, in many cases, the main reason for waiting is not the accumulation of additional equity, but rather the proof of debt service capability before concluding the largest contract in the homebuyers' lives. Rent plus savings rate show that the future burden can also be sustainably managed, provided no significant new circumstances arise.

From this perspective, waiting is a kind of insurance.

One should never forget that you have a couple of opponents when saving.

Example calculation:
Construction project including land 300,000€
Current rent costs 700€
Savings rate per year 10,000€

Construction price increase p.a. 3% = 9,000€ (Energy Saving Ordinance, inflation, etc.)
Unnecessary rent costs 12x700 = 8,400
Unnecessary costs = 17,400 p.a.

Of course, you save interest later; with a 30-year fixed interest rate at 2.6%, you save about 5,000€ interest per 10,000€ equity.
That means I save 5,000€ by saving one more year and at the same time spend 17,400€

In my opinion, in most cases the unnecessary costs exceed what the construction loan would cost more.
For me it is clear: whoever wants to build and does not invest more than 40% of their net income in the house SHOULD DO IT!

But by "saving at full throttle" I understand something more than just ~0.27% of the construction project per month. Either the construction project is too expensive or the savings rate is too low. With 15,000 p.a. the calculation already looks quite different..

Says someone with a net income that 90% of Germans can only dream of... *SCNR*