ᐅ Process for Purchase, Demolition, and New Construction + Is This Timeline Feasible?
Created on: 11 Apr 2021 11:50
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NewHouseAppear
Hello everyone,
I would like to get your opinion on the following situation, as I lack personal experience:
We want to build a new single-family house. For this, we have already purchased an existing (very old) house plus the land; we signed the purchase contract with the notary two weeks ago. No money has been transferred yet, and from everything I’ve read, the property registration in the land register will likely take several months.
At the same time, we have already signed a planning contract with a local general contractor and received initial plans for the new build. They indicated that due to high workload, the earliest possible construction start might be December 2021, which is absolutely fine with us.
Regarding financing, we have had preliminary discussions with Baufi24, Dr. Klein, and two regular banks. The feedback everywhere was essentially that financing should not be a problem due to sufficient equity / land charge from the purchase of the old house and land, but without an approved construction contract/plan, there is naturally no loan yet (I am no longer completely sure about the exact wording).
I now have the following questions (possibly basic due to lack of experience):
Thank you very much in advance for your answers!
I would like to get your opinion on the following situation, as I lack personal experience:
We want to build a new single-family house. For this, we have already purchased an existing (very old) house plus the land; we signed the purchase contract with the notary two weeks ago. No money has been transferred yet, and from everything I’ve read, the property registration in the land register will likely take several months.
At the same time, we have already signed a planning contract with a local general contractor and received initial plans for the new build. They indicated that due to high workload, the earliest possible construction start might be December 2021, which is absolutely fine with us.
Regarding financing, we have had preliminary discussions with Baufi24, Dr. Klein, and two regular banks. The feedback everywhere was essentially that financing should not be a problem due to sufficient equity / land charge from the purchase of the old house and land, but without an approved construction contract/plan, there is naturally no loan yet (I am no longer completely sure about the exact wording).
I now have the following questions (possibly basic due to lack of experience):
- How exactly does the land charge (Grundschuld) work for financing? The purchase price was about €230,000 (230 k€), which we paid in cash thanks to an early inheritance. The new build will cost approximately €520,000 (520 k€) in total, including additional construction costs, so about €750,000 (750 k€) overall. We would like to register the €230,000 (230 k€) as equity/land charge for financing the remaining €520,000 (520 k€). Is this possible even though the old house will be demolished? In theory, the bank could also say: “You have eliminated the value of the old house, so we only recognize the value of the land, and therefore not €230,000 (230 k€) but only €100,000 (100 k€).”
- The planned timeline from our side is roughly as follows, but I am unsure about the duration of the processes and would appreciate feedback:
- Signing with the notary – end of March
- Property registration transferred – max. 6 months later → end of September
- Demolition – ~October
- Finalize financing as soon as construction plan is approved and signed – ~October
- Construction start – ~December
Thank you very much in advance for your answers!
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nordanney11 Apr 2021 15:41NewHouseAppear schrieb:
How exactly does the mortgage charge work for financing? The mortgage charge is used to secure the loan and is registered for the same amount.
So, you will need a mortgage charge of €520,000 (about $560,000) for the bank providing this loan.
NewHouseAppear schrieb:
- Demolition – around October
- Finalize financing as soon as the building plan is approved and signed – around October
You can arrange the financing earlier as well, depending on your preference.
Are you able to cover all the costs until then? Demolition can be quite expensive too.
NewHouseAppear schrieb:
Theoretically, the bank could say: “You have destroyed the value of the old house, so we only recognize the land value and reduce the amount from €230,000 to €100,000 (about $110,000).” This won’t just happen theoretically, but actually. Because you only have the land value left as collateral. That means you would have effectively lost €130,000 (about $140,000).
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NewHouseAppear11 Apr 2021 15:48I find "thrown out the window" a harsh way to put it. There are no other building plots or houses available, so this was our only option. 😀
Yes, we will also pay for the demolition in cash. How exactly could we arrange the financing already? The advisor from Dr. Klein said that a bank usually only does this once we have the final building plan with approval.
In rough terms, this is what we had in mind: a total budget of 750,000 euros. Of that, we paid 230,000 euros in cash for the house and land, another 30,000 euros will be paid in cash for the demolition, and the rest will be financed. Theoretically, thanks to an early inheritance, we could contribute even more equity, but we actually don’t want to.
Yes, we will also pay for the demolition in cash. How exactly could we arrange the financing already? The advisor from Dr. Klein said that a bank usually only does this once we have the final building plan with approval.
In rough terms, this is what we had in mind: a total budget of 750,000 euros. Of that, we paid 230,000 euros in cash for the house and land, another 30,000 euros will be paid in cash for the demolition, and the rest will be financed. Theoretically, thanks to an early inheritance, we could contribute even more equity, but we actually don’t want to.
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nordanney11 Apr 2021 16:14NewHouseAppear schrieb:
I think "thrown out of the window" is a harsh way to put it. There are no other building plots or houses available, so that was our only option. 😀 Unfortunately, that is often the case. But the money is really gone for good and will never come back. You just have to be aware of that. Nothing more, nothing less.
NewHouseAppear schrieb:
How exactly could we arrange the financing already? The advisor from Dr. Klein said that a bank only does that once we have the finalized building plan with approval. Most banks want to see a plan from you. Plan means the architect’s cost estimate, a general contractor’s quote, or something similar. It must be clear what is being built and what it will cost. The permit, for example, can also be a condition for loan disbursement.
The advisor was wrong. Otherwise, it gets really difficult if you can’t pay for the land with your own equity. ;-)
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NewHouseAppear11 Apr 2021 16:26Okay, got it, thanks!
Then we’ll wait a few days; our general contractor was supposed to get back to us with a new draft.
What worries me is the long process of transferring the land registry title to us and the demolition companies. They say there’s still some time until October, but if we can only proceed once the title has actually been transferred, it might still become tight timewise.
Let’s hope so... :/
Then we’ll wait a few days; our general contractor was supposed to get back to us with a new draft.
What worries me is the long process of transferring the land registry title to us and the demolition companies. They say there’s still some time until October, but if we can only proceed once the title has actually been transferred, it might still become tight timewise.
Let’s hope so... :/
NewHouseAppear schrieb:
They mentioned a possible construction start in December 2021 due to high demand, which would be perfectly fine for us. Snow, freezing cold, frozen ground, etc... building in winter is generally a bad idea. Realistically, depending on weather-related force majeure and so on, construction will likely not start until spring. So don’t set your expectations too high for December.
NewHouseAppear schrieb:
We would register the €230k (approx. $250k) as a mortgage / equity to finance the remaining €520k (approx. $570k). Is that possible even if the old house is demolished? In theory, the bank could say: “You destroyed the value of the old house, so we only recognize the land value, reducing it from €230k to €100k (approx. $110k).” The mortgage amount matches the loan amount you want from the bank. If I understand correctly, you want to finance the full €520k (approx. $570k), so the mortgage will naturally be €520k.
You don’t receive the money as a lump sum; funds are released only in stages according to construction progress, and the money can only be used for the build. Simply put, the loan is secured by what you are constructing plus the value of the land. Therefore, it doesn’t matter that you are demolishing the old house.
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NewHouseAppear11 Apr 2021 17:41Ok, great. Thank you very much for the answers!
In principle, as I said, we are not in a rush, so it doesn’t really matter whether construction starts in December or March. Our architect also mentioned that they only build down to a maximum of 5°C (41°F), or carry out certain construction steps only because of the risk of frost.
Regarding the loan, you understood correctly. Our original plan was: we have a total budget of €750,000 and put in about €230,000 plus demolition costs as equity, with the rest financed. However, since there was a long gap between purchasing the old house and starting the new build, the advisor from Dr. Klein said the easiest way would be to pay for the old house plus demolition in cash, have that recorded by the bank as “already paid equity from the total amount,” and then finance the entire remainder from the bank, so that we would be back to our original assumption. This way, the bank does not say “you are financing 100%” for the conditions, but sees that we have already invested all of our equity into the total sum.
In principle, as I said, we are not in a rush, so it doesn’t really matter whether construction starts in December or March. Our architect also mentioned that they only build down to a maximum of 5°C (41°F), or carry out certain construction steps only because of the risk of frost.
Regarding the loan, you understood correctly. Our original plan was: we have a total budget of €750,000 and put in about €230,000 plus demolition costs as equity, with the rest financed. However, since there was a long gap between purchasing the old house and starting the new build, the advisor from Dr. Klein said the easiest way would be to pay for the old house plus demolition in cash, have that recorded by the bank as “already paid equity from the total amount,” and then finance the entire remainder from the bank, so that we would be back to our original assumption. This way, the bank does not say “you are financing 100%” for the conditions, but sees that we have already invested all of our equity into the total sum.