Bank loan and loan-to-value - is financing affordable?

Hello everyone,

we are currently planning the construction of a single-family house. We have just purchased the plot, the construction costs will only be determined in a few months. Based on a rough calculation by our architect (= father-in-law), we need financing of approximately TEUR 325 (with construction costs of TEUR 490).
TEUR 50 Kfw Energy Efficient Building (at least Kfw 70)
TEUR 50 KfW Home Ownership Program
TEUR 225 first-ranking bank loan (= under 60% of the lending value)

Since the loans should be paid off around retirement age, a term of max. 25 years is necessary.
The costs for this are approximately EUR 1,500 per month in total (bank loan calculated with 15 or 20 years fixed interest, all loans max. 1 year interest-only).

Now to the topic of income: due to the birth of our third daughter, I am (more or less) the sole earner. My wife still receives parental allowance for 10 more months (EUR 550 per month), afterwards another year can be bridged with unemployment benefits (similar amount to parental allowance). Then another year without income until our youngest is in kindergarten and my wife can work part-time again (at least EUR 500 per month targeted).

Now to our income/expenses
Net income EUR 3,511 per month (plus annual net bonus payment TEUR 5-7 as well as annual salary increases averaging 2%)
Child benefit EUR 558
Net income wife EUR 200 (side job as Tupperware consultant)
= total EUR 4,268

Insurances EUR 600 (life/retirement/private health supplementary)
Insurances EUR 200 (house/liability/legal protection etc.)
Car EUR 0 (two company cars with no further personal burden)
Phone/Internet/TV EUR 80
Kindergarten EUR 261 (for two children, will be eliminated until moving into the new house, about EUR 100 for the third child in three years)
Living expenses EUR 1,300 (incl. vacation, purchases, clothing, etc.)
House reserves EUR 300
House utilities EUR 200
= total EUR 2,780

We do not live badly and the calculation works out well. Nevertheless, there are always doubts.

Do you find the financing over a max. of 25 years too high (despite the always existing buffer through my wife’s income or wage replacement benefits in the next two years)? Would it be better to extend to 30 years and work with special repayments?

I am very grateful for constructive suggestions.

What I notice. You can probably forget the 60% loan-to-value ratio. Since the banks disburse the KFW funds, almost all banks calculate the loan-to-value ratio from the total loans including the KFW funds. This means the loan-to-value ratio exceeds 60%. If the construction costs of 490K€ are without the land, this land is additionally included as equity in the calculation.

Regarding ALG: I would not count on it. Unless you can prove a daycare place or other childcare, your wife is not employable and will not receive ALG.

Regards Musketier

Never count on money that you do not have 100% guaranteed yet. It’s nice if it comes through -> [Sondertilgung], a new couch, but if it doesn’t, it shouldn’t hurt.

If your net income is around €3000, you might want to scale down your expectations. I think your loan amount should be between €250,000 and €280,000. You can repay that with €1000 monthly at 1% interest in case things get tough.

Hello Musketeer, the 60% loan-to-value ratio for the bank loan is acceptable. TEUR 490 includes the property, meaning we are contributing about TEUR 165 as equity. The unemployment benefit would also come because I have a home office and could therefore take care of the little one. We are not counting on the money anyway; it is the bonus on top. Sustainable for us are "only" the listed EUR 4,268 monthly (+ converted EUR 400-500 monthly from bonus payment). Regards Nordanney

Hello there,
we only count the money that we actually have. Thus, we have a guaranteed monthly net income of EUR 4,268 (+ 400-500 EUR monthly from bonus payments). All other income, for example if my wife has a good Tupper month and earns around EUR 500 net, is not included in the debt service calculation. The same applies to parental allowance/unemployment benefits; with these, we can, for example, finance additional vacations or new furniture or whatever else.
Our goal is to find a financing structure that is as closely aligned as possible to our life plan. Hence the installment calculations with a 25-year term (= just before retirement). I cannot take the risk of residual debt after 10 years with a 1% repayment rate and an interest rate increase to, for example, 4-5%, especially with a family of five.
From the bank’s perspective, we only spend about 35% of our net income on the installment = cold rent (without my guaranteed bonus payments). That is a healthy ratio.
Best regards
Nordanney

We don’t count on the money either, it’s the cherry on top. What is sustainable for us is "only" the listed EUR 4,268 monthly (+ converted EUR 400-500 monthly from bonus payments).

Your wife’s secondary employment and bonus payments are usually not counted. What happens if your boss suddenly cuts the bonus during economically difficult times? Even shift allowances and the like were rejected in my mortgage application because they could be cut from one day to the next.