ᐅ Basic Information on Home Building, Planning, and Funding Options

Hello everyone,

I’ve introduced myself briefly before, but I’d like to share a bit more about my topic:

My wife and I (26 and 27 years old) have slowly started thinking seriously about buying a house. The main focus, of course, is the down payment! We plan to save as much as possible since we need it for financing. However, not all of it will be spent on ancillary costs; some will be reserved for interior furnishing and “wishes.”

Now, we’re not sure how to proceed! Where should we get information about subsidies or grants? Would there even be any available for us? What are the best ways to save? Any tips or advice? Would it still make sense to open a home savings contract / building savings plan now?

Overall, we want to be well prepared and ready for many (though not all) possible scenarios—even before buying a plot of land! Regarding the plot, it should be said: if we find a suitable one, then we will start!!! The motto is not to rush or force things but to proceed wisely!

We do have one small problem, or rather, the only wish we have!

We currently live in a three-family house owned by my parents. The house is almost fully paid off! My mother no longer works because my father is severely disabled, and she takes care of him. We have talked to my parents often about the possibility of a gift! However, they said that if they were to give us the house, they would want us to build a small bungalow for them in our name. They have some savings, but they would not qualify for a loan since they don’t have full income.

Is there any way we could support my parents without causing disadvantages for them? I hope you understand what I mean... Also, information about possible subsidies would be very interesting!

To add about building, my godfather promised that if we somehow or sometime start building (also regarding my parents’ topic), a large construction company he owns would support us! This would be considered as part of our own work!

I hope I have been able to describe the situation somewhat clearly, and I’m really looking forward to great tips and suggestions!

Best regards

I think you need to break this down a bit more:

Your parents own a three-family house; they live there, you live there, and who else? Is the third living unit rented out, or does another family member live there as well? When you say the house is almost paid off, what exactly does that mean? How much is still outstanding? Would you pay off the remaining loan after a gift transfer, or would your parents settle it beforehand? In that case, would you continue living there or not? If not, you might potentially have a mortgage for your own house and still have the loan on your parents’ bungalow. Would your parents basically stay living in their house, meaning would a lifelong right of residence be an option for them, or do they want to move out?

So the real question is: Do you actually want to build, or would you stay in your parents’ house if the property is gifted to you?

Equity is always good—the more, the better. Since we don’t have any further information about your financial situation here, it’s hard to give you advice. Of course, a sufficient income is important to be able to pay the installments. Are your jobs permanent? What about family planning? That should be your primary focus for now.

How can you save equity? Currently, savings interest rates are low; probably the best option at the moment is a high-yield savings account where you can always access your funds. Whether a home savings contract (building savings contract) is worthwhile is hard to say. When do you want to build? If it’s within the next few years, it probably won’t help much because, firstly, it will be difficult to obtain an allocation in time, and secondly, although the loan interest rates are usually quite good, in the current low-interest environment it rarely makes sense. Also, interest rates on the savings side tend to be very poor.

What do you mean by funding? Funding as in L-Bank loans (I believe this is specific to Baden-Württemberg)? Whether there is something available for your federal state in Germany and what requirements you would need to meet, I don’t know. Maybe others know, or you can check online. Otherwise, there are KfW loans available for home building. The best option is to check their website.

Regarding personal contribution (sweat equity): Do you want to build yourself, for example, with your godfather, or will he support you by letting you hire his construction company and maybe offer you some financial discounts? In the first case, you can, of course, declare your own work as a personal contribution, but keep in mind that as a non-professional (which I assume), you will spend significantly more time and energy than a professional. Materials still have to be purchased, which costs money. And whether your relatives always have time and will work for free is also questionable. In the second case, you might get a slightly better financial deal, but then you can’t declare any sweat equity.

Otherwise, I think it’s good that you don’t want to stress yourselves out. Take your time to find a plot of land, and then find a competent planner who can design a house according to your ideas.

Hey homebuilders 2014,

First of all, thank you for your response! I’m glad that you can get quick answers and help here to receive better advice.

Now to the questions (which I will answer according to the order of the text):

- My parents own a three-family house, where they live on the ground floor, my wife and I live on the first floor (renting, to support my parents in the current situation), and two young female students live in the attic.

- According to my parents, the house should be fully paid off in two years. I would need to check the exact amount again. However, my parents also received a new interest rate from the house bank this year and now pay significantly less than before, and it still finishes in two years (about 2.5% interest). But according to my father, the remaining amount should not be much. I think it is under 30,000 euros (around 30,000 euros). We would also make extra payments if possible!

- If we build a house for my parents, they would continue paying off the remaining loan, and we would then take over the small house for them. This, of course, depends on the legal possibilities.

- The idea was not to build both houses at the same time. The priority would initially be my parents’ house, since they want to build a barrier-free (accessible) home! As mentioned, we would keep trying to save on our own equity to get as far as possible — which is another reason why we want to keep living there. However, the existing house does not really help us with financing through rental income.

- We want to build anyway! But the timing is something we would need to figure out. As mentioned before, if it’s possible, my parents’ house would have priority. But these are just initial thoughts and I never know if it will actually work out as planned!

- Financially, it looks like this: I am currently the sole earner (about 2,500–3,000 euros net per month), my wife is a master’s student (about one more year). After rent, car, etc., I have about 1,700 euros left per month. My job is permanent. Starting a family is also planned but difficult right now; however, we do want to have children eventually.

- I have also considered a savings account. But you just have to see how it goes. We simply want to save as much as possible. We plan to build in about three years, assuming we find the right plot of land. If we find one earlier, we will see how to handle it.

- Regarding funding programs: I’m not necessarily referring to KfW, since I’m familiar with that topic. I’m asking about, for example, WfA funds (NRW.Bank) or other programs—I still need to research those further. Another funding topic concerns my father, since we want to build the home barrier-free for him. Are there any special funding opportunities for that or any specific grant programs?

- Own labor: My godfather and his sons would basically build with me. He explained it to me once, but we still need to discuss it. Basically, I would be the main builder and they would help me. I wouldn’t have them work for free, but it would be arranged in some other way 😀

I hope I have provided more detailed information than in the initial post! 🙂

Okay, at least now you have a better understanding of the connections.

However, I won’t be able to help you with every question. What is certainly important is that your wife finds a secure, permanent job after completing her Master’s degree. Regarding children, as mentioned before, don’t overlook this topic—especially since during parental leave and possibly afterward (with part-time work), a large part of your wife’s income will be lost, and your expenses will increase.

One problem I see is if you first want to pay off the bungalow for your parents. Depending on its size and the cost of the plot, several hundred thousand euros (several hundred thousand US dollars) will likely add up; making it accessible (barrier-free) certainly won’t come cheap. For this reason, I currently don’t see how you (if the arrangement with the gift is as planned) will be able to build in three years. You can probably use rental income to help with financing, but the question always is how much will remain after deducting all expenses and taxes, and you should always keep in mind that rent payments can also stop. Another important point is that the “old” house (meaning your parents’ house) will eventually need renovations or refurbishment, so there must be money for that as well. In principle, if the house belongs to you, it could be used as collateral for financing your own home, which should lower the interest rate. However, you should be aware of the risks: in the event of default, this house could be liquidated to cover the loan. Whether you want to take this risk is up to you.

Unfortunately, I can’t help with funding programs. Maybe someone else can provide advice on that.

Regarding self-building: please be aware of the time, stress, and costs involved. It’s not as simple as just saying, “I’ll build now.” As a layperson and working alongside a job, it will take forever—that should be clear to you. If you also have small children at home whom you want to see, it will be even more difficult. We have a neighbor who has been building his house mainly by himself and still is. He and his entire family come from the construction industry, so they know what they’re doing. He has been building with family and friends for over a year after work (it’s not a typical 9-to-5 job where you just stop after 8 hours), every weekend, and every vacation day, and now he says he would never do it again. It takes a toll on you, your relationship, and your family, and it drains a huge amount of energy. I have the utmost respect for anyone who builds their own house, but it’s not as easy as some imagine, so this should be carefully considered.