Does our financing match our capabilities?

Hello everyone,

in search of loan calculators and information on the interaction between income, equity, and loan amounts, I ended up here.

Like so many before me, I would also like to ask if you consider the following self-made financing example realistic.

I am 29 and earn 1500 EUR net, my partner is 32 and earns 2450 EUR net.

So a total monthly income of 3950 EUR. I have already read that this is actually not little, but in relation to building a house, it is not exactly a lot either. Although I feel that we might manage our budget better than others.

As of now, we have a condominium that will be paid off by the start of construction in spring 2016 (Loan 1). The plot of land is also already owned and financed (Loan 2).

The apartment will be sold and with the proceeds, the land will be paid for (fits 1:1), so the land would be our contributed equity and the house construction itself would need to be financed.

The two loans together burden us monthly with 1100 EUR.
My partner also has maintenance obligations of 300 EUR.
We currently pay 260 EUR in homeowners' association fees.
I have totaled the non-monthly costs and distributed them over the months, resulting in 190 EUR per month.*
Internet, mobile phone, hairdresser add up to 140 EUR.
Fuel 250 EUR.
Groceries 300 EUR.
Clothing, hobbies, vacation 500 EUR.

This leaves a calculated savings rate of 900 EUR, which is also present in practice (I have averaged it over the last months).

*Non-monthly costs are: 2x car insurance, 2x car tax, club fees, various insurances, contraception costs , account management fees, broadcasting fees, property charges for apartment and land.

At the start of construction, the two loans would be gone and the 1100 EUR would be “free,” plus the savings rate of 900 EUR, so theoretically we would have 2000 EUR per month available to pay for the house, i.e., just over 50% of our net income. That’s the financial background, now to the actual financing example.

Loan amount 250,000 EUR
Interest 2%
Repayment 4%
Monthly rate 1,250 EUR
Term without special repayment 20 years.
750 EUR “surplus.”

Based on this, the assumption to use half of the surplus for an annual special repayment (12 * 375 = 4,500 EUR). -> The term would be reduced from 20 to 15 years.

I know many things will change and many things will turn out differently than planned. We don’t have children yet but want to have 2 children. Accordingly, my salary will be missing for a while, but when I think of parental allowance and child benefit and our monthly surplus, it doesn’t worry me. A positive change is also imminent, since we are both about to be promoted, which would increase our combined net monthly income by 300 to 350 EUR. That will probably happen before the start of construction, but since it isn’t the case yet, I haven’t included it now.

I suspect that compared to other examples here, we probably don’t live the most expensive lifestyle, but we don’t feel like we are missing out on anything. Maybe because we are used to getting by with little from earlier years. Perhaps not ideal is that our equity “only” covers the plot of land. But otherwise, I at least don’t feel that we would overwhelm ourselves with the targeted financing amount, rate, and term.

Now for the big question: what do you think?

Best regards
Cora

A few things I noticed:
- Consider the prepayment penalty for the loan repayment.
- How much is the property worth?
- Are all ancillary costs (electricity, water, etc.) included in the house money?
- 2 cars don’t just have costs for fuel, insurance, and tax. They will also need to be replaced eventually, repairs are due/ new tires, etc.
- 2% interest rate is probably no longer possible at the moment, if I follow the interest rate developments.
- Pregnancy not only reduces income, it also brings larger purchases and ongoing costs, and then doubled.
- Wedding planned? It costs money initially, but it also improves the income situation due to your different salaries and especially with pregnancy/parental leave.

I still don’t consider it unrealistic.

Basically a relaxed calculation - with 4% repayment. Mentally reduce it to 1-1.5% and you still have a possible buffer of up to €625 per month to cover contingencies. I (personal opinion) wouldn’t worry too much about the financing. Wedding and tax class change for children + child benefit.

P.S. First say goodbye to the idea of making additional repayments. There are always reasons to spend money. Especially when you have a house (garden, decorations, etc.) and even more so when there are children. They are a bottomless pit (says a father of three...)

Thank you for your feedback.
Prepayment penalty - does not apply, the apartment will be "regularly" paid off in a few months
Land value - 50,000 EUR
House money - includes water and heating, electricity is additional and missing from my calculation (80 EUR), so thanks for completing my list
Cars - are special in our case (hobby of tinkering and a workshop in the family), so they cause only low costs
Interest - we'll see, but I estimate it will move a few tenths over/under 2.0%
Pregnancy - of course there are costs here, but there is also quite a bit available in the family for the first time
Wedding - will also take place sometime in 2016. How it improves the situation is not clear to me. At the moment, we both have tax class 1. Then we could do 4/4 or 3(er)/5(me). I always thought that after the wage tax annual adjustment, the same would come out, regardless of 4/4 or 3/5. But the parental allowance is calculated from the net, so class 5 would even be disadvantageous for me?

Best regards
Cora

Hello nordanney,

thank you too, you posted while I was writing my contribution.
Do you really think we should lower the repayment from 4 to 1 to 1.5%, or um 1 to 1.5% - so to 2.5 to 3% repayment? Before we go into it with only 1% repayment, we'd better not do it at all. But I think you mean something different than I currently understand, as your calculation with the 625 EUR is not clear to me either.

Keyword special repayment: maybe not every year and maybe not from the beginning, but with the apartment we also made special repayments of 4000 EUR annually starting from the second year.

Best regards
Cora

Right, I mean it a bit differently than you understand. You COULD reduce the repayment if, for example, unemployment or something similar occurs with you. That’s why the buffer. So far, you are taxed individually. With the splitting tariff after marriage, you have advantages - and if, for example, you cannot work and your husband is at 3, there is still quite a bit left over (additionally, the installments could be reduced). Are my thoughts understandable now? ☺