Assessment of financing for the purchase of a single-family home

The problem is the low lending value of the house, it just says [BJ 1960] on it.

30 years seems to be something almost no one normally does.

If you have the possibility to be done in ~20 years, why should you finance for 30 years? That is the idea most people follow.

That only works for you guys to a limited extent because you pay the high standard land value in the metropolitan area and the income as a sole earner with 4 children realistically does not suffice to close the financing after 15-20 years.

How high and likely the gifts will be, you have to assess yourselves, though I wonder – if both sides are so wealthy – why there are then "only" two bathrooms. This is not meant to sound rude or arrogant, but in my opinion your parents could significantly cushion your risk if the gifts were available now or in the near future, simply to get significantly below the total package of 600K€ as early as possible.

The risk you ultimately bear/take lies in the future value development of the location. As long as this remains stable, your gamble will pay off, since you could sell the property in 20-30 years at then usual market values and after repaying the remaining debt hold a sum in your hand that is enough to buy elsewhere (meaning: lower standard land value).

That is ultimately the situation you have, for example, in M, Hamburg or other metropolitan areas – you cannot pay off such a property with a situation-dependent salary like yours within 25 years, but you also have the chance of effective value increases of the property. But also the risk that this might not work out.

If you only look at the bare salary figures, I would advise against it. You earn ~75K€ gross/50K€ net, that is not lavish for 6 persons. With child benefits and if your wife earns 1000€ net earliest in 2 years (after the 4th child), you have about 5K€ monthly together.

A household budget would be interesting at this point...

Currently, without your wife’s additional salary, I don’t believe you can effectively save for a new car, house maintenance, etc., that will only be possible again when your wife works again. The targeted special repayments can consequently only come from future gifts or a significant income jump with you.

The oldest child might go to university in 10 years, property ownership will (afaik currently) be included in BAföG, even if the money is not actually available because it is tied up in the house. The high property value then reduces BAföG funding.

In my opinion, a lot depends on the special situation with inheritance/gifts. That can turn a lot in the right direction – but if it doesn’t happen as expected, it will be a tough situation that you only get out of when the children leave the house. Then a sale will almost inevitably be necessary, because the remaining debt is still relatively high and would then have to be paid from reduced retirement income.

Best regards
Dirk Grafe

Dirk, nice that you write it so matter-of-factly. Gifts or inheritance, I thought that too when I was 45. Then my parents declared a clean bankruptcy and died quite impoverished, dependent on us children, and left behind 600 thousand in debt, so instead of inheritance, it was the probate court and renunciation of inheritance. That's life. Building or buying a house, working yourself to the bone for it your whole life, only to have to sell it when retirement comes, because it’s still too expensive and unpaid, that’s just not okay. What kind of life option is that, then, when I need rent-free living, I sell out of financial necessity, before that I just saved to pay down the debt, the only one happy is the bank. That’s nearly like drug addiction. All for the dealer. Please, rethink everything before you walk into misery. Karsten

And the alternative, a 90 m2 rental apartment for five people for the same money? Or children in a home? 5k is also barely above the poverty line.

So, I can fully understand the original poster.

Besides, due to the high equity initially invested, one is always out of the danger zone when it comes to a change of plans. So, the remaining debt is always well below the value of the property; for example, if one needs/wants to downsize because all the children have moved out.

Normally, with such a remaining debt after 20 or more years, I would only have concerns with initially high loan-to-value ratios around 90% or higher.

Dirk, nice that you write it so objectively. Gifts or inheritance, I also thought about that when I was 45. Then my parents built a clean bankruptcy and died quite impoverished, dependent on us children, and left 600k debts, so instead of inheritance it was the probate court and renunciation of inheritance. That's life.

Completely clear, that's why I also write that I would advise against it based on the bare numbers and that a gift at the current time would remove a lot of uncertainty.

Building or acquiring a house, working hard for it all your life, only to have to sell it when you retire because it is still too expensive and not paid off, that just doesn't work.

That is quite common in metropolitan areas.

What kind of life option is that, when I need rent-free living, then I sell out of financial distress, before that I only saved to repay, the business only pleases the bank. It is close to drug addiction. All for the dealer. Please, reconsider everything before walking into misfortune. Karsten

Stay calm. We are talking here about a property/investment from the 60s (!), which has a current purchase price of about 600k€ (545k€ plus incidental purchase costs), plus 50k€ renovation and two bathrooms – in total roughly 700k€. As said, for a property that is over 60 years old. The cost of a new building in this location can be counted on two fingers.

That exceeds the budget of an average house construction/purchase by far.

The situation after 25-30 years is roughly similar if the interest rate situation remains calculable (which it is to some extent if the majority is fixed for 25 or 30 years). Because after 25 years, the average house is paid off and — disregarding depreciation/inflation — has a value of about 350k€.

The city property still carries about 350k€ debts, but the property is worth 650k€ or more.

So if both buyers pay off approximately the same amount of the loan in 25 years and the house values develop equally, both have the same amount in hand when selling.

And that is sometimes hardly avoidable in metropolitan areas if you are not childless and earning double income but still want to live centrally. Whether everyone can sleep peacefully with that is another question.

Best regards Dirk Grafe