This article is adapted from the business magazine Capital and is available here for ten days. Afterwards it will only be available to read at www.capital.de. Like stern, Capital belongs to RTL Deutschland.
It happens more often than many people who want to build a house initially think that building a house will be more expensive than expected. Sometimes trees on the property have to be felled or the roof structure in an old building has to be replaced because it is infested with the house longhorn beetle. Such additional costs will take their toll later: If the building loan is used up earlier than planned, more money will have to be found so that construction does not come to a halt. Then builders need additional financing.
The problem is that the bank also has to check this loan again; for them this is the same effort as with a large loan. That’s why additional financing is usually accompanied by high interest rates. This is annoying for building owners – but there are a few points they can keep in mind to avoid getting into this situation in the first place.
An important point is the additional construction costs. There are many things that new owners often only check once the purchase decision has already been made – and which can vary depending on the applicable municipal law: for example, that certain types of trees are not allowed to be felled. Jan Mehlkopf, a construction financing consultant from Berlin, often experiences that his clients incorrectly estimate the additional construction costs. That’s why it’s important to find out as much information as possible about it. “Even a construction company can’t estimate that,” he says. “There is only one person responsible for the project in the overall process: that is the customer.” Nobody takes this responsibility away from him.
And there are many construction companies that would drastically reduce the additional construction costs in order to have a competitive offer. Mehlkopf therefore recommends that his customers compare the offers from different construction companies. You quickly notice whether the companies estimate the additional construction costs realistically or not.
For a classic new building on a slab in the city, Mehlkopf recommends calculating at least 50,000 euros in additional construction costs. “Otherwise there is a big risk that it will quickly become more expensive.” If a cellar is planned or there is little infrastructure in the area surrounding the property, the amount should be correspondingly larger.
Another point that builders should keep in mind is sampling. You must also plan sufficient capital for this. Toilets, bathtubs, hand basins, windows, doors, floor coverings, smart home systems: all of this can be expensive – especially if you want something special to be included. “If someone only likes tiles that are twice as expensive as the standard tile, then the house will of course be more expensive in the end,” says construction financing consultant Mehlkopf.
The construction company’s house price usually also takes sampling flat rates into account. However, these only apply to one standard. Customers should therefore find out as precisely as possible what is included in the respective standard – and consider whether this standard is sufficient for them or whether they perhaps have more expensive tastes. Then the sampling fee should be set higher.
It is also sometimes recommended to include a reserve option in your initial loan. In practice, however, this often does not make sense. The banks obviously have to take the value of the property into account when refinancing. If a reserve is to be added, borrowers may have to deposit more equity because the financing may be riskier.
Customers then receive correspondingly worse interest rates. You can also try to increase the total cost by, for example, including the cost of the garden. But this can also mean that the overall interest rate is higher in the end. “Then it’s a calculation example,” says financial advisor Mehlkopf. “Is it better to have less money at a better interest rate – or a larger amount at a slightly worse interest rate?”
An obvious tip that Mehlkopf also likes to give his customers is: save money. It is best for developers to set aside the expected potential rate, which is usually higher than rent, during the search phase and build up reserves.
Mehlkopf also recommends considering whether parents or grandparents might want to get involved in the project. “Then you don’t have to invest every last euro of equity from the outset.” If the loan is not only sufficient at the end, but even has some left over, builders can put this amount into the house or have it flow back into the loan as a special repayment.
