Financial theory experiences?

Hello,

the topic doesn’t directly concern me yet, but you can never start thinking and saving early enough, right? :D

My question is basically addressed to all home builders, people with loans, etc.

First of all, the text is long, but I think it wouldn’t help if I just came here and said… I want to buy a house for x euros. My income will be this and that. Possible or not? So please have some mercy with young and inexperienced people like me. ;)

As written in the title, the topic is about buying a house (in Bavaria). Although both my family and my boyfriend’s family each own houses, since the market has changed significantly since 1990, you can’t really rely on these examples and therefore can’t get really solid advice from family members.

After looking online for a while at what houses cost, usually around 400,000 euros without incidental costs, which some online calculators estimated at about 50,000, you could assume around 450,000 euros as the price the house would cost us one day. Of course, you cannot calculate how the market will change, but probably not extremely within the next 5 years. Therefore, you can only go by today’s situation anyway.

My boyfriend is currently studying business informatics and will finish his studies in February 2018. Assuming he found a job by mid-2018, since he’s already working on contacts, and we want the house to be ready to move into in January/February 2022 and from then on have to pay the installments, he would have 42 months of income left, plus the 13th and 14th salary each year. Since he still lives at his parents’ house and it’s not worth moving into his own apartment for just a few years, he would hardly need anything from his income. At the moment, he gets by well with around 550 euros per month. Later on, that probably won’t change. According to various websites like Absolventen.de, etc., a business informatics graduate starting in a large company with 1000 employees that pays according to tariff (and that’s where he wants to work) earns 42,000 gross per year. My mother, who works in HR, told me that typically you have to deduct 30% (or was it 29%?) from gross to net. So if you divide the 42,000 by 12 months (usually the 13th and 14th salaries are included, which you split equally over 12 months), you get 3500 gross per month. Deduct 30% from that and you get 2450 net per month. Now subtract his 550 euros expenses and you get 1900 euros per month. If I generously calculate how much he could save in 42 months and assume 'only' 1500 per month, we get 63,000.

According to my logic, you only start repaying the loan once you actually own the house. Possibly as additional info: we don’t want to build ourselves but buy a house from an already planned construction project (semi-detached house, terraced house). So you register for a house, sign the contract, and then it’s built. But if the company keeps building for months and you don’t yet own the house (handover of keys), theoretically you don’t have to start repaying the loan yet, right? Unfortunately, I’m not very familiar with this topic, but so far I assume repayment starts from the transfer of ownership? So my calculation with the saved capital until 01.01.2022 should be correct. (Whether ready to move in January or February doesn’t really matter.)

I am currently still a law student and for a few years longer than my boyfriend. I will most likely finish my studies in February 2022 (which is why we want the house to be move-in ready around then). However, I can save something from my monthly income, we also have a savings book and I get some money from my family, so my equity on 01.01.2023 (why this is later will be explained) would be around 120,000 euros. Whether that counts as security at a bank I don’t know, since it’s divided in a way that my boyfriend will take the equity for the house and I will finance the rest, i.e., furniture, household items, appliances, and all that stuff. Of course, you can’t calculate exactly, but roughly I’ve estimated that 100,000 should be enough; with 120,000 there would be a bit more leeway. The money would be spent in 2022 and then invested more or less in house ownership (like furnishings, appliances, etc.).

If we then owned the house turnkey by February 2022 at the latest, it would still be uninhabited. That means I wouldn’t need living expenses and neither would my boyfriend (at least no more than before. So he would continue his 550 and I continue the difference of my monthly money to what I can save), since we want to take until 01.01.2023 (now follows the explanation for above; that is, my family would prefinance the 120,000 euros for me (since they’re already included) and I would then pay it back monthly because I get the money anyway) with the completion. As soon as the house is finished, I would start looking for jobs where, according to my mother’s experience, you usually get offers starting from the 1st of the month and then, depending on when you get a position, you can pack the last few things and move in completely. Thus, we would only need living expenses from then on, when we have two incomes and I have a fixed job, and no longer live at home.

The explanation was to show that basically only my boyfriend’s monthly income would need to cover the loan installments (since he couldn’t save 1,500 anymore, but would pay the loan installment from that), but no living expenses.

After completing my studies, I would be a graduate lawyer (Diplomjuristin) since I would not pursue the 2nd state exam due to my move to Germany. However, I aim for a distinction exam or at least the Austrian equivalent and would use the gap year between graduation and job to learn the differences to German law (which, according to online info, are not huge since only some changes began since the mid-19th century). So I wouldn’t be disadvantaged on the job market but rather have an advantage with two legal systems. As for exact earnings in this field, I can’t say (no data available online), but with a law degree and a distinction exam, I should be able to expect about 1,800 net since even my mom’s office clerk, without a university degree, earns 1,600 (all figures net). Assuming the 13th and 14th salaries are included, dividing 1,800 by 6, you get about 2,100 euros net.

Allegedly, academic salaries increase over the years from the start of employment, so it’s possible that my boyfriend would also earn more after 4.5 years of work experience than at the beginning, but to calculate that exactly, the online numbers are too vague.

So assume my 2,100 net and his 2,400 euros, which together would make 4,500 per month.

I would take a maximum house installment of 1,300. Living expenses should be covered with a maximum of 1,200. Electricity, water, insurance, and so forth (all these fixed costs) probably also 1,200. So that makes 3,500 euros. I already checked a car installment at about 200 euros. Then we would still have 800 euros left for savings, repairs, if we want to treat ourselves to something, etc.

So would it be possible that a bank would give us the following loan:

450,000 fully

- 63,000 equity from my boyfriend

- 17,000 equity from me (I said it should work with 100,000, I would have 120,000... let’s forget about the other 3,000.)

We would have 80,000 equity.

370,000 would have to be borrowed.

Maximum installment 1,300 per month.

It should be paid off by retirement age, which is possible if I start working at a bit over 31 and my boyfriend at a bit over 28. Later job start → later retirement age.

In addition, I will inherit a house from my mother someday. The one from my grandmother, a bit bigger but smaller garage and garden, was valued at 220,000 last year after my grandfather’s death. So that will also be something my mother will have here. My boyfriend will inherit half a house, as he has a brother. A large plot divided, two houses, the grandfather’s was also sold last year after his death and fetched 200,000 euros. The parents' house is almost twice as big. So there will be another inheritance to come. My father will probably also leave me something someday.

We won’t retire before mid/late 60s if we consider the age when starting work, and there will surely be inheritance by then to pay off the house so that the mortgage is paid off by retirement.

Whether my father will possibly contribute something to the equity…I don’t know since we hardly see each other, but my mother occasionally has contact with him. So, the equity could rise a bit, but I don’t want to count on it.

Would that theoretically be a possible plan that a bank would grant?

You keep reading about zero financing, so I think that even without 25% equity, or as it was always said before, something like that should be possible, especially if you earn 4,500 a month.

Would a bank also approve if my grandmother and mother theoretically guaranteed with their houses? Together they are worth more than the loan amount, so they would be the guarantors who would have to continue paying in case we are unable to pay. But you can’t do it with guarantors who only get pension money and have no other income. But theoretically you can always guarantee with real estate, right? They would certainly do it, even though with a high income it is of course very unlikely that one can’t pay. For me, it’s purely about the what-if and whether the bank would see such real estate as security if relatives guarantee.

We have no big purchases planned besides the house, as I said. The entire property is financed by me and you probably can’t expect new purchases in the first few years. I also included a car. Neither of us likes vacations. Only two children would be added and one small and one big dog. That would be our general life plan until retirement.

One last additional info. Furniture and so on, which I am financing, will be bought at Ikea for about 60,000 (the rest elsewhere). They also offer installment purchases (I once calculated it, but now this function doesn’t work anymore... maybe it’s due to my browser? So I’m not really familiar with it now.). Ergo, theoretically I could contribute 60,000 more equity, buying the furniture on installments, if they even offer that for such a high amount. I just don’t know if it would make sense or if it would be smarter to do it the other way round and go to the bank with more equity and take out an installment plan there.

With the houses it always says that they are somehow state-subsidized houses, or that is possible... but after x research I found nothing online about it. So no idea what advantages that would bring.

Of course it could also be that we earn more or have fewer costs, but somehow I prefer to assume less income and more expenses and then be glad afterwards that it’s better, rather than ending up with less income/more expenses than expected.

Realistic? Unrealistic? Is there a catch? Did I make a mistake somewhere? Forget to calculate something?

I’m curious and grateful for any help. :D

Best regards

I just wanted to edit how I came up with the 1,300 rate, but somehow the option is no longer available, probably you can only do it shortly after?

Example house:

Here was a link.

There is a calculator on offer (which I now somewhat trust) and even with zero equity you come to 'only' 1,307.76. Parking space/garage must be paid separately, but should be covered by our equity, so it won’t exceed 1,300, since it ’only’ costs 12,500 and that probably shouldn’t make a huge difference to the rate.

Hello

First of all. The text is long, but I think it wouldn’t help if I just come here and say… I want to buy a house for x euros. My income will be such and such. Possible, or not? So… have some mercy on young and inexperienced people like me. ;)

Sorry, but the text was too long for me. I zoned out after the first part.

My boyfriend is currently studying business informatics and will finish his studies in February 2018. If we assume that he has found a job by mid-2018, as he is already working on contacts and so on, and we would basically like the house to be ready for occupancy by January/February 2022 and from then on the installment would have to be paid, he would have 42 months of income left, plus the 13th and 14th salary each year. Since he still lives at his parents’ house and it is not worthwhile to move into his own apartment for those few years, he would barely need anything from his income. At the moment he manages well on around 550 euros per month. Later on, that probably won’t change. According to various websites, like Absolventen.de, etc., a business informatics graduate starting out at a large company with 1,000 employees that pays according to collective agreement (and in that direction he wants to work) earns 42,000 gross per year. My mother, who works in HR, told me that you usually have to deduct 30% (or was it 29%?) from gross to net. If you divide the 42,000 by 12 months (usually the 13th and 14th are also included, whereby that /12 calculation simply spreads it over the months), you get 3,500 gross per month. Deduct 30% from that, and you end up with 2,450 net per month. Now subtract his 550 euros expenses and you get 1,900 euros per month. If I generously calculate how much he could save in the 42 months and assume ‘only’ 1,500 per month, you get 63,000.

If your mother works in HR, then she should explain things properly to you.
1. Unlike Austria, the 13th and 14th month’s salary are not legally required in Germany.
2. You can throw all those nice salary statistics in the bin. First sign the contract and then you’ll know what is actually being paid. My wife works in recruiting at an IT company. Students come fresh from university with salary expectations at moon prices.
3. Use a gross-to-net calculator to check your calculation. You’ll find that not more than €2,100 will come out.

The rest of the post is all too theoretical and based on assumptions, and if one little stone doesn’t fit, the whole structure collapses.
Just this much more: one should calculate with about 5% annuity. You won’t get there with your installments of €1,300.
I had to delete the link because it violates the forum’s terms and conditions.

Short notes:

- 450k can already be tight today. But it certainly won't be enough for a developer house in 5 years. Calculate with 4% more per year. Then you already have to handle 550k in 5 years.

- no job means 0 income from the bank's perspective. So first job and then house financing

- even developer objects are not usually paid in full at the end, but installment payments are made during the term according to a fixed plan

- normally, in the bank's consideration, 13/14/15 salaries do not play a role in whether you can afford the installment.

- with the salary, the demands increase. It is always like this. For example, it starts with the fact that as an employee you cannot dress like a student

- the flat-rate suits mentioned are only flat-rate. When you use a gross-net calculator, you find out that when calculating your friend's net income, 200 EUR less comes out.

- future inheritances should actually always be set to 0. In other words, the property should be financially manageable from your existing resources.
If it then comes to a usable inheritance case, you can be happy that the financing can be ended earlier.

The reason is that situations like nursing cases/dependency can never be predicted. And then the inheritance melts like butter in the Sahara. The nursing care insurance is quite effective at utilizing assets

----
Conclusion: let your friend work first and then save the equity you calculated and then you'll see further :)

Hello, sorry I don't want to get too personal with you. As a law student, you approach this like chaining paragraphs together ;) it's 2016, you are far from finished with your studies, young people making plans for 2022 and building a house. Sorry, that's too abstract for me. In real life, at your age, I would at most plan until the next vacation ;) you obviously earn 120k and you both will have good jobs. Let 3-4 years pass and see then. It would annoy me to plan house construction 6 years in advance. Nice that his boyfriend only spends 550€, with rising income the demands increase, in 6 years you could move north, abroad, illness, pregnancy, you separate, someone dies. All the best, live first.