Calculating construction costs is a tricky subject: Unplanned cost explosions not only occur in public projects such as the Elbphilharmonie in Hamburg, but also in private construction projects, construction costs can multiply unexpectedly. That is why we have put together the most dangerous traps for you, which you should definitely avoid when financing construction.
the essentials in brief
Know and avoid cost traps
Building your own house – for many builders, this is the most important investment of their lives. You are fulfilling a long-awaited dream. However, to avoid a rude awakening, you should know the four biggest pitfalls you can face when it comes to house building costs.
Cost trap no. 1: Uncalculated ancillary construction costs
Anyone who lives for rent knows that the cold rent does not cover all costs: the rent also includes the ancillary costs, which make up a considerable part. It is very similar when building a house. The construction costs themselves are far from being the final amount. Here, too, there are considerable additional costs:
Even before the actual construction, the ancillary costs amount to 5-15% of the property price due to brokerage commission, land transfer tax and notary and land registry fees. In addition, there are additional costs during and after construction for special requests such as an awning or a carport, a fountain in the garden, a fireplace or new furniture. All in all, you can definitely factor in up to 30% additional construction costs. That’s often a five-figure sum that’s missing from the original cost estimate for the house – but that you’ll have to spend later. You can read all the ancillary costs that you incur before, during and after building the house in our large ancillary construction costs checklist .
Cost trap no. 2: Insufficient construction financing
The second trap many builders fall into is financing. Most construction projects are ultimately more expensive than originally calculated, so you should definitely plan a buffer.
Not only the additional ancillary costs can drive up the prefabricated house costs, builders often overestimate how much work they can do themselves when building the house . Sometimes it’s just bad luck or a mistake in the calculation: the fact is that the money often runs out before the construction project is completed.
Then the builder has to ask his bank for additional financing – but an additional loan can be expensive if the bank raises interest rates. In principle, builders should decide, and this is especially true in times of low interest rates, for the longest possible term of the fixed interest rate and a generously calculated loan amount. During the fixed-interest period, the monthly interest rates agreed with the bank cannot vary. At first glance, some builders may find the shortest possible loan term to be the most favorable, since the interest that has to be paid is shorter. As already described, building a house is usually more expensive in the end than initially planned and you should also think about other possible costs such as vacations or the purchase of a new car in addition to the construction. You can find an overview of all credit models here .
If you underestimate your financial reserve during the loan repayment phase, your personal financing plan can fail. In the worst case, there is even a risk of a financing gap and the construction project has to be stopped.
For this reason, builders should try to get a realistic overview of their own financial possibilities. Because without sufficient equity , the construction of a house is very difficult or risky to realize. If the builder’s equity investment is less than 20% of the construction costs , most banks raise the interest on a loan significantly. Building a house with little or no equity is basically only an option for builders with high monthly income. You can pay off the loan with higher monthly repayment installments and thus prevent potentially more expensive follow-up financing with high residual debts.
You can find out how to calculate correctly in this article on financing your own home .
Cost trap no. 3: Dubious construction companies
There are always cases in which construction companies file for bankruptcy after their customers have already made partial payments. While some of these companies continue to operate under a new name, the client’s money is often lost. Even if such fraud is of course not the rule but a bitter exception, you should protect yourself from dubious building contractors as much as possible.
We have summarized what else you should consider when choosing the right construction company in this article.
Cost trap no. 4: Note the extra costs for extra services
In general, a thorough comparison of different manufacturers and their offers is worthwhile. In some cases there are significant price differences with similar performance. However, what is similar for all manufacturers: the more unusual the architecture, the higher the costs. A compact design with few projections and recesses, gables, bay windows and a simple gable roof instead of a hipped roof can save builders a lot of money.
The same applies to individual wishes when planning the floor plan, which many providers list under the item “Extended services”. However, many builders are not aware that the changes can lead to high additional costs. A lot of money can be saved by skilful floor plan planning. It would be possible to choose a standard floor plan from a prefabricated house supplier or to have an architect take over the floor plan and the room layout from the outset.
And even a basement drives up the costs significantly. If you are not planning to set up a hobby or party room there, but only want to use it for building services and as a laundry room, you can reduce the price by around €40,000. Because there is enough space for the gas boiler, hot water tank, washing machine and dryer in a technical room on the ground floor or under the roof – a cellar is not absolutely necessary for this.
For a smaller budget, building a bungalow can sometimes be considered. In a bungalow, all rooms are on one level. It usually costs less than a multi-storey building and also has other advantages, such as accessibility. Read here how you can find out which type of house is best for you.
In general, it pays off not to choose the cheapest but the most reliable provider. Because particularly cheap offers are often associated with a lot of trouble and usually not only cost nerves – often it is ultimately more expensive than initially estimated due to hidden extra costs for additional services (see traps number 1 and 2).
Get smart and go for it!
So that the costs of your house project don’t break your wallet or keep you awake, plan in buffers and calculate carefully.