What to consider when assessing your own contribution to the construction process
Whether you would like to decorate the walls, lay laminate flooring or install electrical systems yourself – there are many ways a borrower can directly contribute to the construction process to reduce the financial burden. Nevertheless, there are pitfalls lurking when calculating the potential to save expenses. If you are aware of them, you can spare yourself and your customers these problems.
Pitfall no. 1: Time required and manual skills are wrongly estimated.
One danger is that the customer estimates his own contribution unrealistically: that the time required for individual measures is underestimated and the craftsman’s skills overestimated. Possible consequences: construction is delayed, and professional workers must then be hired to do the work. Both would make the project more expensive. Hobby craftsmen should therefore be advised to have the value of their own work confirmed by the building contractor or architect. This reduces the risk of gross miscalculations and subsequent costs, a measure many banks demand in any event.
Pitfall no. 2: The cost of material is added to the buyer’s own contribution.
Moreover, many borrowers are initially unaware that their contribution can consist only of wage costs, not material costs, as these are incurred anyway. In order to attain a considerable amount in terms of the buyer’s own contribution, he/she would have to work very hard. For example, in order to save 20,000 euro through personally performed work, the borrower would have to work 200 hours at an hourly rate of 80 euro. If for instance an example calculation is based on an hourly wage of 80 euros the 20,000 euro mentioned would be produced after 250 working hours. Can a person employed full-time who is not a professional craftsman invest this time, and if so, for how long? It must also be taken into account that some of the work performed independently must be approved by a competent body against a fee. This is the only way to ensure that warranty claims remain in force.
Pitfall no. 3: Own contributions are added to the loan amount
Another error involves the extent to which personal contributions affect the loan amount. Quite a few borrowers initially assume that they receive their own contributions from the bank “on top” of the loan amount. To a loan amount of, for example, 220,000 euro, they add in such cases the exemplary 20,000 euro saved by their own contributions and thus expect a loan of 240,000 euro. However, the borrower’s own contributions are treated by the banks as equity. Instead of the loan amount increasing, it is reduced, in the example mentioned, from 220,000 to 200,000 euro.
In fact, nothing speaks against including the ‘do-it-yourself’ mortgage in your calculation, but builders should do so with circumspection and in a well-balanced manner.