Building / buying a house under the circumstances possible?

Hello,

my boyfriend and I are faced with the decision to buy a well-maintained existing property or to build (and thus "never again" or for a long period have no unplanned costs).

As you know, offers are currently scarce - or incredibly overpriced. Here with us (Ruhr area), a 200-year-old house without connection to the sewage system, without heating, but with "electricity" from the year it was built and right next to the railway tracks was recently sold for over 130k.

I am 35, my boyfriend 34. We do not have children and are still undecided whether we want any someday. We both work full-time, he permanently employed in the metal industry with 13 monthly salaries and I as a civil servant. Together we have a monthly net income of €4,500 plus his 13th monthly salary, which is divided into two payments (holiday and Christmas bonus).

We have quite little equity, about €15,000, as we have so far liked to spend our money on traveling, eating out a lot, etc. We are fully aware that this will very likely not be possible after buying a house. We will spend part of the equity on our wedding in 2 months, so I would say that we are approaching the financing with ZERO equity because we want to keep the rest left after deducting the wedding costs as a buffer for a kitchen etc.

On the expense side currently are
- warm rent €950, cold rent €750
- electricity costs €50
- mobile phone contracts €20
- internet + landline €30
- insurance €400 (including my private health insurance)
- fuel €80
- car loan €240 (the other car is paid off)
- savings rates €800 + €400
- groceries including drugstore €300
- €300 retirement provision

That makes €3,470 expenses (savings rates already included) in relation to €4,500 income = €930 currently spent on "unnecessary stuff" like weekend trips, eating out etc.

What other income do we have? Someday, hopefully in the more distant future, we will both inherit a house, but you really can't count on that, can you?

We have already submitted a viewed property and a cost estimate request to our financial advisor, property cost: €260,000 (mid-terrace house with garage). Nothing would need renovating there. Heating, windows, doors, garden, floor coverings were all renewed 4 years ago. We were calculated full financing. I do not have the offer in writing since we only wanted a rough estimate at first. We came to a monthly rate of €1,080 (plus ancillary costs like property tax, saving for investments etc.), the full loan amount would be paid off after 28 years.

What do you think - does it even make sense with our income situation to still look at new builds? Or should we go for the "used" property?

Hello, you should be aware that with an older property, ancillary costs (including reserves) are 1,500€ per month. Additionally, there is the risk of having a child. It costs money (expenses and part-time employment). So you should consider that for your future! And yes, with 4,500€ net plus additional bonus, you are poor savers. I see the chance of a new build as zero.

Faster than with a 110-120% financing (in your case) you cannot throw money out the window. Not only do you get bad interest rates on the 100%, but you also get even worse interest rates on the remaining 10-20% (broker, property tax, notary, etc.), since these are usually handled via consumer loans.

Where do you end up with 2.9% interest?

Just as a calculation example - where you pay 130k€ interest on a 260k€ house:

Property cost: 260k€
Acquisition incidental costs: 33k€
Loan: 293k€

20 years fixed interest period, interest 2.9%, repayment 2% = 1200€ installment plus 450€ additional costs + 150€ provision formation because "old" house.

Thus, you have to calculate approximately 1800€ per month for the house over the next 20 years and still have another 10 years ahead, since then there will still be a residual debt of 137k€.

It may sound a bit harsh. But with your average salary and no equity, a house is probably beyond your means. I find your savings rate, if it is realistic, high. If you can keep that up for another 3-4 years, the situation looks different. You should urgently question your motivation for buying a house. An old house will quickly present you with unexpected expenses. You will never live as cheaply as now again in your life, you have to be clear about that.

And yes, at €4,500 net plus additional bonus, you are terrible savers.

We know that, we have always lived very well, but precisely because of that, hardly any equity. So far, we have traveled several times a year (expensively), never watched the euro when it came to gifts, went out to eat at least once a week, etc.
On top of that, I always paid for my cars in cash, meaning there was always some equity, it was just also always spent again.
In the past, these “serious” topics like house, children, etc., were so far away that we only now discovered the necessity of saving (and of course want to maintain this as well).

You can’t throw money out the window faster than with a 110-120% financing (in your case). Not only do you already get bad interest rates on the 100%, but you also get even worse rates on the remaining 10-20% (broker, property tax, notary, etc.) since these are mostly handled through consumer loans.

Where do you end up at 2.9% interest?

20-year fixed interest, interest 2.9%, repayment 2% = €1,200 installment plus €450 additional costs + €150 provisions because it is an "old" house.

So you have to reckon with about €1,800 per month for the next 20 years for the house and another 10 years ahead of you, as there would still be an outstanding debt of €137k.

Yes and no. Since it is a private sale in this specific case, no broker fees apply. The notary is a friend of ours. This saves us significantly on the ancillary purchase costs.
The financing offer comes from Volksbank, arranged through an advisor from Dr. Klein.
The loan amount already includes not only the ancillary purchase costs but also €10,000 for renovation work. And after 28 years, we would be finished, with no residual debt. The loan runs over 28 years, not 20. We actually want to avoid follow-up financing.
We have the payment schedules and information about the property taxes from the current owners: the property taxes amount to €100 monthly, plus electricity, plus €60 housing fees (the terraced houses are part of a homeowners’ association).
All the "expensive" things like heating, windows, doors, roof are only 2 years old. Can so many surprises still await us?

It may sound a bit harsh. But with your average salary and no equity, a house is probably beyond your means. I find your savings rate, if it is real, to be high. If you can keep that up for another 3-4 years, things look different.

You should urgently question your motivation for buying a house. An old house will quickly confront you with unexpected expenses. You will never live as cheaply as you do now, you must be aware of that.

That is not a problem, we have already had this concern ourselves. We just ask ourselves what we are constantly asked by acquaintances and friends – “how do other people manage that?” Or what we also constantly hear is “well, if you don’t manage it, then who will?”
When you look around nowadays at who has bought or built a house, and people tell, sometimes proudly, how difficult it was to find a bank to finance them (for 10 years), then you think “well, that really shouldn’t be a problem for us.”
But of course, we do not want to fall into a trap.

Our motivation for the purchase is quite simple: We already pay quite a bit monthly for a two-room apartment. And we know what you pay nowadays for an equivalent three-room apartment (which we would have to move into with a child). There you are already at €1,200 including additional costs. I don’t want to imagine how this will develop further and what we will pay in rent over the course of our life.

I find your considerations and views understandable and evaluate the initial situation as a healthy basis for that, to which I give you the tip to ask those friends who manage it how they do it.

You spend 300 euros on retirement provision as you write, in addition you pay rent, you could reduce consumption.

Your bank also apparently assesses the project positively, I would encourage you to continue pursuing the project.