Assessment of financing project and budget accounting

Hello everyone,

we are currently calculating whether we can afford this single-family house and how it can be financed. Specifically, it is about a property in a small town in NRW. The location is almost perfect (daycare, school, doctors, city center, and friends/family are in the immediate vicinity). Basically, we wouldn't need to renovate or rebuild anything in or on the house at the moment and can move in without any problems. Except for painting work, just freshen everything up a bit and paint according to our ideas.

General information about the property:

[*]How large is the plot? -> 360 sqm
[*]What is the land value? -> In a good location: €335/sqm
[*]New building, old building (year of construction), house type? -> Built in 1988
[*]Rooms: 4 rooms, 1 bathroom, 1 guest WC, basement, attic
[*]Garages? -> Carport with 2 parking spaces
[*]How large is the house? (living area / usable area) -> 109 sqm
[*]Heating -> Gas central heating approx. 20 years old (investment needed in near future)
[*]Last renovation 2014 -> (new floors, renovated bathrooms, new terrace, all windows replaced, new front door, newly landscaped front garden, attic conversion including roof insulation)
[*]General condition: Modern and well maintained
[*]Fitted kitchen with appliances remains

The purchase price is €369,000.
Equity is €50,000, of which at least €45,000 is to be invested and €5,000 is to be used for moving/renovation.
(Additional emergency reserve of about €5,000 is also available)
Until the first installment is due, we can still save at least an additional €5,000.

The incidental purchase costs are around €32,000.
Financing requirement: €355,000.

General information about you:

[*]How old are you? 34/34
[*]Are there children? 1 on the way/2 planned
[*]What do you do professionally? Employed mechanical engineer/civil servant teacher
[*]How many hours do you work? Currently both full-time. She will take parental leave for at least 1 year soon.

Income and asset situation:

Currently, we have a household net income of €6300 and set aside €2300 of it for the house purchase.
Our fixed costs including food are about €2000. (Rent, utilities, 1 car, mobile phone, insurance including her private health insurance, subscriptions)
The remaining €2000 is planned for separate savings accounts, ETFs, hobbies, clothing, vacations.

During the upcoming parental leave (initially planned for her for 1 year) we expect a household net income of €4600 including child benefit.
We calculate a loan installment of €1500 and incidental costs for the house of €600. (€5/sqm calculated, rounded up to €600)
The remaining fixed costs including food we estimate at €1500. (1 car, mobile phone, insurance including her private health insurance, subscriptions)
The remaining €1000 is planned for separate savings accounts, ETFs, hobbies, clothing, vacations.

After parental leave when both work part-time (70 him/75 her) we expect a household net income of €5350 including child benefit.
We have additionally calculated costs for childcare of €450 here.

After parental leave with the constellation (100 him/50 her) there is also a household net income of about €5300 including child benefit.
All figures come from a household budget that has been kept for years.

In the worst case during parental leave, the installment of €1500 would represent 33% of the household net income.
In all other cases, the share is well below 30%, including incidental costs at around 40%.

Financing:

We have received an offer for the €355,000, which consists of two components:

1. Bank loan of €255,000 at 3.99% fixed interest for 20 years with 1.31% repayment, installment: €1113 (36 years term)
2. KFW 124 loan of €100,000 at 3.57% fixed interest for 10 years with 1.51% repayment, installment: €423 (35 years term)

Total installment: €1537

What bothers me a bit is the long term, even if this is purely theoretical and can be reduced with special repayments.
With 20 years fixed interest, I can sleep better in case a higher rate arises from the KFW after 10 years.

Here I would like to ask for an assessment whether this is bearable or suicide.

Thanks and best regards

What bothers me a bit is the long term,

That's because you barely repay. You can have a higher repayment calculated for yourself. Personally, I would use the equity for the incidental purchase costs and keep the rest as a buffer. So finance the entire house through a loan.

Heating -> gas central heating about 20 years old (investment will be needed in the near future)

... and consider whether to include it directly in the financing.

What speaks against the long term? It fits perfectly with your wife's civil servant status. A 0.42% interest rate differential is already something, I wouldn’t go for 20 years. Sure, you have the interest rate risk, but your loan amount is moderate, and your wife is a civil servant with guaranteed increasing income (setting aside any misfortunes).

What rather irritates me is your low equity in relation to your income. Either you have lived generously or took some extra detours during your training. That may make frugal early years possibly uncomfortable.

Definitely possible, would also tackle the heating quite directly. Salary very good, loan amount rather low, that fits. In my opinion, your equity is somewhat low for the salary, but especially as a teacher it takes forever to finish.

What rather confuses me is your low equity in relation to your income. Either you have lived generously or taken some extra detours during your training. This might make the early years of saving possibly unpleasant.

The 50k has only been accumulated in the last 4-5 years through saving/investing.
It could be much more, but for me the “click” regarding finances unfortunately only happened at the end of my 20s.
My wife only started her studies in her mid-20s after an apprenticeship in another field and initially repaid her student loans after graduating.
We are therefore currently completely debt-free.