Financing a renovation: buffer before loan amount

Plan the scope of the project with reliable quotes and a reserve for the unexpected. Don’t automatically finance the maximum amount available.

Building the project budget

Separate firm quotes, estimated items and the reserve. Only written quotes are reliable; everything else is an assumption and should be labelled as such. Only count your own labour if you realistically have the time, and include the actual cost of materials. It saves labour costs, not materials — and if the time runs out, it becomes the most expensive item in the project after the fact.

• Tradespeople’s quotes
• Materials and incidental costs
• Project reserve
• Own funds, without touching your emergency fund

Budget first, then the loan amount

The order matters more than the interest rate. If you first ask what loan you can get and then cut the project to fit, you have spent the reserve before the first wall is opened. So draw up the full project budget, deduct your own funds — without touching your emergency fund — and only finance the rest. That figure is your loan amount; it must not shift during the comparison, otherwise you are not comparing offers but wished-for repayments.

Additional work is the rule, not the exception

When you work on an existing building, something almost always comes to light that nobody could see beforehand: damp, old wiring, a subfloor that won’t bear the load. A separately shown project reserve is therefore not excessive caution but part of the calculation. We deliberately don’t give a universal percentage — it depends too much on the age of the building, its condition and the scope of the work. What can be said in general: the reserve belongs in the budget and not in the loan amount, otherwise you pay interest for the whole term on a buffer you may never need.

If the money isn’t enough after all

If the loan amount isn’t enough, taking out additional financing is not the only option — and rarely the cheapest. So plan the loan amount realistically from the start and keep the buffer for the unexpected in your savings rather than in a larger loan. If the net loan amount is increased significantly after the contract is concluded, your creditworthiness has to be reassessed on an updated basis anyway under § 505a Abs. 2 BGB. Additional financing is therefore not a form to fill in but a new process, and you should check the effective rate and total cost just as carefully as with the first loan.