Assessment of financial feasibility and expected conditions

Hello dear forum,

After much of our previously saved equity has flowed away over the last 2 years (purchase of 2 cars, 2x repayment of Bafög, wedding and offspring...), we had actually planned to save up a solid amount of equity over the next 1-2 years in order to fulfill our dream of owning a home.

As preparation for a future house purchase, we occasionally look at properties just to get a better idea of what can be expected for different budgets and what we ourselves expect from our house.

Today we had another viewing and we really liked the house so much that we are now wondering whether we would regret not going for it, especially since we also find the price very reasonable.

My brother, who is certainly a bit more risk-averse than I am, has always advocated that I bring in at least 25% of the purchase costs (house + additional costs) as equity, but we are far from that and it would also take the above-mentioned 1-2 years of saving. Since I have not yet spoken to a bank or financial advisor on the subject, I would appreciate your feedback on whether you consider the project viable or if we should expect massive financial disadvantages in financing due to our low equity.

General information about you:

[*]Married couple with a daughter
[*]Me 34, wife 33, daughter 1.5
[*]We might want to have a second child
[*]I have been working as a project manager in a German corporation for 8 years, my wife currently works as a clerk at a real estate company (career changer, as she could not find a position in her studied profession "Chemistry" after parental leave). Her job is currently temporary.
[*]Both employed
[*]I work about 40 hours, my wife 35 hours

Income and asset situation:

[*]My net income is 4,500€, my wife’s is 1,200€. Additionally, there is 190€ child benefit, so in total we have a monthly net income of about 5,900€
[*]I also receive a contractually agreed annual bonus of about 7,000€ net. However, this is intended for vacations or other purposes and should not be considered further for the house financing.
[*]Currently, we can contribute a maximum of 50,000€ available equity for the project.

Expenditure situation:

[*]Our monthly expenses average about 3,300€.
[*]This covers all costs (including child care and fun budget for the adults). These expenses also include a cold rent of about 650€ for our current 110 m² rented apartment, which would no longer be incurred when buying the house.

Savings performance:

[*]Currently, we save about 2,600€ per month on average. So everything that is left in the account at the end of the month.

Income and expenditure totals:

[*]Total income: 5,900€
[*]Total expenses: 3,300€
[*]Balance: 2,600€
[*]Of which sum cold rent and dispensable savings: 650€ rent would be eliminated.

General information about the property:

[*]Plot: 560 sqm, living area 140 sqm + basement
[*]Old building 1958
[*]One garage
[*]Some modernization at the beginning of 2000 (new electrical & water installation, new bathrooms, basement excavated...). Possibly some money would have to be invested soon for a new heating system and new windows to improve it energetically.

Construction or purchase costs:

[*]Purchase costs 380,000€
[*]Additional costs incl. broker approx. 50,000€
[*]Total costs approx. 430,000€

Other costs:

[*]Other expenses like moving etc. are covered elsewhere

Cost summary:

[*]Total costs: 430,000€
[*]Equity: 50,000€
[*]Financing amount: 380,000€

The monthly installment should also be easily manageable with only my income, in case my wife temporarily loses her income due to a possible second child or other reasons. Would it be advisable to work with special repayments or are there loans where the monthly installments can be adjusted?

I look forward to your feedback and please let me know if further information is required!

Best regards

Flexible financing. With a 5% annuity, you still have €3,000 per month left to live on (bonus and wife not taken into account).

If that's not enough for you, it will naturally get tight ;-)

Depending on the provider, the repayment rate can be adjusted several times per year or unlimited within a certain range depending on the offer. For example, a reduction to 1% repayment or an increase to 5%. However, this varies depending on the offer.

The 100% financing will earn you a poor interest rate >2% with a 20-year term. However, what would be the alternative?: If prices continue to rise by 10% p.a. in the next 1-2 years, your good savings performance will be more than compensated by the higher increase in value. You will then have 120k in equity, but the property may cost around 450k.

If the property fits and is reasonably priced (which is rare these days), then why not? Maybe also check things like employer loans, etc. There might be a better interest rate.

However, I don’t find the matter that easy: Equity of the wife aside, bonus aside

1500 to 1750 rate
Additional costs for the house, hard to estimate due to the energetic condition 1.5€ per m2 then it is 210€
(!) Maintenance 250-500€ (due to the age and especially because of the repairs already upcoming)

With the above expenses, it comes to around 4k to 4.5k. Still manageable though.

It's solid. Fits!

Thank you very much for your answers, it really helps me to hear more opinions on the matter! I find the thought process of future appreciation vs. additional equity buildup very interesting, I have never looked at it that way before... I have one more question regarding ghost's answer: You write that due to the 100% financing the interest rates will be high. Is there a usual threshold at which the interest rates improve significantly (e.g. 90%) or is it more linear so that putting in 10 or 20k€ more equity would not bring much improvement?

As far as I know, there is such a limit at 80% But first go to banks... you can also get good conditions with full financing. Sure, not as good as if you have a lot of equity, but at the moment the interest rates are so low that it really doesn't have to be dramatic