Good evening everyone,
we registered in the forum today and are just starting our house building plans. We live in Bremen and want to build in the surrounding area.
Today, we had an appointment with an independent financial advisor who also financed my brother’s house and previously my parents’ house. I have just finished my studies, and we now have a total net income of about 3650 € (approximately $3850). We are both 29 years old – I completed vocational training and gained work experience before my studies.
I was mainly there because I am, of course, aware of the unusual interest rate situation and wanted to ask whether we should save to build equity or rather take advantage of the low interest rates. The answer was clear in this case: with 20,000 € (about $21,000) in equity, we can easily get a construction loan for 220,000 € (around $231,000). The interest rate situation is exceptionally favorable. The portion from the KfW loan would be 100,000 € (about $105,000). The effective interest rate for both loans combined would be 2.79%. The KfW loan would be repaid at 4.35%, and the bank loan (120,000 € / $126,000) initially only at 1%. The fixed-rate period is 10 years at first.
The monthly payment would be 958.31 € (approximately $1005).
This seems manageable monthly and exceptionally affordable to me.
Of course, the conversation was just for information, as all further steps (house type, construction company, land plot, etc.) still have to be reviewed and clarified to determine the actual financing needs.
My question is simply whether we actually received a good (non-binding) offer and whether you also think it makes sense in our situation to start building sooner rather than later, despite the low equity share?
Thank you very much.
we registered in the forum today and are just starting our house building plans. We live in Bremen and want to build in the surrounding area.
Today, we had an appointment with an independent financial advisor who also financed my brother’s house and previously my parents’ house. I have just finished my studies, and we now have a total net income of about 3650 € (approximately $3850). We are both 29 years old – I completed vocational training and gained work experience before my studies.
I was mainly there because I am, of course, aware of the unusual interest rate situation and wanted to ask whether we should save to build equity or rather take advantage of the low interest rates. The answer was clear in this case: with 20,000 € (about $21,000) in equity, we can easily get a construction loan for 220,000 € (around $231,000). The interest rate situation is exceptionally favorable. The portion from the KfW loan would be 100,000 € (about $105,000). The effective interest rate for both loans combined would be 2.79%. The KfW loan would be repaid at 4.35%, and the bank loan (120,000 € / $126,000) initially only at 1%. The fixed-rate period is 10 years at first.
The monthly payment would be 958.31 € (approximately $1005).
This seems manageable monthly and exceptionally affordable to me.
Of course, the conversation was just for information, as all further steps (house type, construction company, land plot, etc.) still have to be reviewed and clarified to determine the actual financing needs.
My question is simply whether we actually received a good (non-binding) offer and whether you also think it makes sense in our situation to start building sooner rather than later, despite the low equity share?
Thank you very much.
Oh dear… someone was very badly advised here. First of all, you need to understand a bit about loans and where the low interest rates come from. A bank will typically finance you a loan of up to 60% of the house value at a low interest rate. This is where the risk for the bank is lowest. Your advisor probably assumes the house will be worth around 350,000 euros, which including the land might roughly match the actual total cost. If you don’t want to build a terraced house, you definitely need to plan for this. The question is, where will you get the missing 130,000 euros? If you can even find a bank willing to cooperate, it will be expensive because this second bank will be registered second on the land register, so it has little chance of recovering its investment.
Now about the financing: 2.79% sounds great at first. But what will you do after 10 years? What happens if interest rates rise again to 7-8%, as they did 10 years ago? Then your monthly payments will be around €2,000 (approximately $2,000) for the house, and you would need to earn significantly more. Children are a big factor too: we are expecting a child ourselves and can already calculate how much money will be left when my wife goes on maternity leave and takes a parental leave year. Afterwards, she will return to work only part time at 50%, and we will have additional childcare costs. You have to consider all of this. Your advisor has failed completely if they only offered you a 10-year fixed rate. You should fix the rate for at least 20 years at these low interest rates, agree on prepayment options, and aim to repay at least 3% of the principal within the first 3-5 years. Otherwise, after 20 years you will still have a remaining debt of 150,000 euros, and end up paying off the loan over a total of 40 years.
But overall none of this really matters at first. You’re starting in the wrong order. First, calculate the costs, then approach lenders. If you don’t know what it will cost, you won’t get any good offers. And make sure you have equity; only if your down payment is solid will you get “exceptional” offers.
Please write how you arrived at the figure of €220,000 (approximately $220,000), or how you think you can build a house with that. You can forget the €20,000 (approximately $20,000) equity in your calculations because you should definitely keep that as a financial buffer. Building a house always costs more than planned… always.
Now about the financing: 2.79% sounds great at first. But what will you do after 10 years? What happens if interest rates rise again to 7-8%, as they did 10 years ago? Then your monthly payments will be around €2,000 (approximately $2,000) for the house, and you would need to earn significantly more. Children are a big factor too: we are expecting a child ourselves and can already calculate how much money will be left when my wife goes on maternity leave and takes a parental leave year. Afterwards, she will return to work only part time at 50%, and we will have additional childcare costs. You have to consider all of this. Your advisor has failed completely if they only offered you a 10-year fixed rate. You should fix the rate for at least 20 years at these low interest rates, agree on prepayment options, and aim to repay at least 3% of the principal within the first 3-5 years. Otherwise, after 20 years you will still have a remaining debt of 150,000 euros, and end up paying off the loan over a total of 40 years.
But overall none of this really matters at first. You’re starting in the wrong order. First, calculate the costs, then approach lenders. If you don’t know what it will cost, you won’t get any good offers. And make sure you have equity; only if your down payment is solid will you get “exceptional” offers.
Please write how you arrived at the figure of €220,000 (approximately $220,000), or how you think you can build a house with that. You can forget the €20,000 (approximately $20,000) equity in your calculations because you should definitely keep that as a financial buffer. Building a house always costs more than planned… always.
Thank you very much for the detailed response – this open and clear approach is exactly what I was hoping for.
I set the maximum budget of €230,000 (approximately $250,000) for the house including the land south of Bremen based on the fact that friends of ours recently built there and stayed within this range – in Bremen itself, this would only be possible for a townhouse.
Regarding the financing:
An offer was also made for a 15-year term, resulting in an effective interest rate of 3.07%. Of course, we need to clarify the costs first – this preliminary conversation was important to me to get an idea of the possible monthly payments and the current interest rate situation. We now have several talks with construction companies, some including both land and house. At the same time, we are searching for suitable plots around Bremen.
The rising interest rates and the possibility of having children are exactly what worries me – in the medium term, the ECB will very likely return to its strict monetary policy, and then we will be facing very different rates. For that reason, I would feel more comfortable with a 20-year term because I can expect to have advanced professionally by then, and my wife will at least be able to work part-time again.
I set the maximum budget of €230,000 (approximately $250,000) for the house including the land south of Bremen based on the fact that friends of ours recently built there and stayed within this range – in Bremen itself, this would only be possible for a townhouse.
Regarding the financing:
An offer was also made for a 15-year term, resulting in an effective interest rate of 3.07%. Of course, we need to clarify the costs first – this preliminary conversation was important to me to get an idea of the possible monthly payments and the current interest rate situation. We now have several talks with construction companies, some including both land and house. At the same time, we are searching for suitable plots around Bremen.
The rising interest rates and the possibility of having children are exactly what worries me – in the medium term, the ECB will very likely return to its strict monetary policy, and then we will be facing very different rates. For that reason, I would feel more comfortable with a 20-year term because I can expect to have advanced professionally by then, and my wife will at least be able to work part-time again.
Interview your friends again in detail about what they actually paid. Building a house for 230,000 works. But including the land, I find that hard to imagine.
We have a plot of land at 150 €/m² (about $160 per sq ft), which is a bargain near us. We received an offer from a prefab house supplier: turnkey for 100 m² (1,076 sq ft) of living space for 160,000. Your budget would have been sufficient for that. However, this price does not include landscaping, earthworks, or a garage, and the plot size would be a maximum of 400 m² (4,306 sq ft). We are not even considering a basement at first. For a well-built house, you should expect roughly 1,300 - 1,500 €/m² (about $120 - $140 per sq ft) of living space. And 100 m² (1,076 sq ft) really isn’t much when it comes to a house.
Regarding loans: don’t be misled by advisors who try to sugarcoat the average interest rate with KfW loans (state-subsidized loans). You also have to invest quite a bit to even qualify for KfW financing. For us, that meant additional costs of nearly 15,000 €. With such a tight financing plan, say goodbye to a fancy kitchen, stylish bathroom furniture, and a wood stove. Those items hit the budget hard. We started at 190,000 € for a 140 m² (1,507 sq ft) house but are now close to 230,000 € due to floor plan changes, ventilation system, wood stove, and so on. The initial price is just a rough guideline.
Since we are in a similar situation as you (a bit older), I know it is possible to save around 2,000 € per month. Maybe you wait another year, move into a cheaper apartment to maximize equity savings. Then you can build a really beautiful dream house... what you can do now is a compromise that you will live with for the rest of your lives.
One more tip that worked wonders for us: ask your parents. It might be possible to invest their inheritance before they pass away in a sensible way. Especially now, with savings accounts becoming one of the best investments, many older people wonder what to do with their savings. It was a difficult step for us, because you want to manage it on your own, but when it comes to building a house, false pride has no place.
We have a plot of land at 150 €/m² (about $160 per sq ft), which is a bargain near us. We received an offer from a prefab house supplier: turnkey for 100 m² (1,076 sq ft) of living space for 160,000. Your budget would have been sufficient for that. However, this price does not include landscaping, earthworks, or a garage, and the plot size would be a maximum of 400 m² (4,306 sq ft). We are not even considering a basement at first. For a well-built house, you should expect roughly 1,300 - 1,500 €/m² (about $120 - $140 per sq ft) of living space. And 100 m² (1,076 sq ft) really isn’t much when it comes to a house.
Regarding loans: don’t be misled by advisors who try to sugarcoat the average interest rate with KfW loans (state-subsidized loans). You also have to invest quite a bit to even qualify for KfW financing. For us, that meant additional costs of nearly 15,000 €. With such a tight financing plan, say goodbye to a fancy kitchen, stylish bathroom furniture, and a wood stove. Those items hit the budget hard. We started at 190,000 € for a 140 m² (1,507 sq ft) house but are now close to 230,000 € due to floor plan changes, ventilation system, wood stove, and so on. The initial price is just a rough guideline.
Since we are in a similar situation as you (a bit older), I know it is possible to save around 2,000 € per month. Maybe you wait another year, move into a cheaper apartment to maximize equity savings. Then you can build a really beautiful dream house... what you can do now is a compromise that you will live with for the rest of your lives.
One more tip that worked wonders for us: ask your parents. It might be possible to invest their inheritance before they pass away in a sensible way. Especially now, with savings accounts becoming one of the best investments, many older people wonder what to do with their savings. It was a difficult step for us, because you want to manage it on your own, but when it comes to building a house, false pride has no place.
Thank you for the second reply – we will revisit this again – luckily, we are not under any time pressure at the moment.
We are in the comfortable position of barely having to pay rent right now (including utilities 300€), which allows us to save quite a bit of money – although there is always that annoying feeling of potentially missing out on this period of very low interest rates.
Assuming we want to build a house here in the Bremen outskirts costing around 300,000€ including the land, how much equity would you recommend saving up?
May I ask which region you are building in?
Thanks again for the great advice.
And one thing is certainly true:
Of course, you want to avoid compromises as much as possible. I would at least like to have my house “prepared” enough so that I can, for example, still install a fireplace later on, etc.…
We are in the comfortable position of barely having to pay rent right now (including utilities 300€), which allows us to save quite a bit of money – although there is always that annoying feeling of potentially missing out on this period of very low interest rates.
Assuming we want to build a house here in the Bremen outskirts costing around 300,000€ including the land, how much equity would you recommend saving up?
May I ask which region you are building in?
Thanks again for the great advice.
And one thing is certainly true:
Of course, you want to avoid compromises as much as possible. I would at least like to have my house “prepared” enough so that I can, for example, still install a fireplace later on, etc.…
Thanks again, your input has definitely enriched our considerations.
For your information, I just spoke again with our friends:
Plot of land 1100 m2 (11840 sq ft) – €58,000 including additional costs
I also found several other plots in this price range here
In Bremen, you can reach the city by train within 13 minutes.
What’s really interesting are the regional differences. I checked, and the surrounding area of Bremen seems to be among the most affordable in the former West Germany.
For your information, I just spoke again with our friends:
Plot of land 1100 m2 (11840 sq ft) – €58,000 including additional costs
I also found several other plots in this price range here
In Bremen, you can reach the city by train within 13 minutes.
What’s really interesting are the regional differences. I checked, and the surrounding area of Bremen seems to be among the most affordable in the former West Germany.