Financing monthly installment €2500 with 40 years term

Hello,

we are currently facing the big question of whether we can finance our construction project or if we will be overextending ourselves. The current market situation is more than bad and according to forecasts and our personal assessment will not get better.

At the moment, we live in an 80 sqm apartment that is already too small for us. Child 1 (3.5 years old) has no children’s room, there is no connection for a dishwasher, which absolutely takes up our time, and walking from the 5th floor to the basement to get to the washing machine is time-consuming. Child 2 will be born this month. This means a move is inevitable for us. However, the housing market currently does not offer any apartment that would be suitable. Otherwise, we would probably rent another apartment despite the poor forecasts and wait to see if it makes sense to postpone the construction project. In the city where we currently live, we would pay an estimated 1500 euros per month in rent for an apartment that meets our requirements - if such an apartment were available.

Now about our construction project:

General information about us:

[*]unmarried couple m/f
[*]30 and 29 years old
[*](soon) 2 children
[*]both tenured civil servant teachers

Assets / income

[*]net income together approx. 7300€
[*]2x child benefit = 438€
[*]assets approx. 50,000€
[*]of which we want to use as equity for the construction: 20,000€ + 10,000€ "private loan" from family

Our construction company has made us an offer of approx. 452,000€ (+18,000€ painting costs to be done by ourselves).
Our plot of land (two plots combined total 860 sqm) costs 154,800€ + 12,000€ development costs

With additional construction costs, we arrive at a financing framework of approx. 630,000€.

The fixed interest period is 10 years.

Since we want to keep our monthly rate at around 2500€ (concrete offer from VR-Bank Saale-Unstrut: 2546€), the result is a term of 40 years.

Our gut feeling says that a rate of 2546€ is quite feasible for us (considering a monthly rent that would also be around 1500€), but in the end there are the 40 years of term, which overwhelm us.

We are curious about your opinions. We feel like we are facing a huge dilemma and do not know how to make the "right" decision without jeopardizing our financial security.

What do you think?

The problem with 40 years is that at the beginning you mostly pay interest and hardly repay any principal. That means that after 10 years, the majority of the debt is still there.

How secure is the wife's salary? You will first have the drop in parental allowance. How high are the income during that time and at what percentage will she go back to work later?

How much repayment rate have you set? Since civil servant salaries will certainly increase by more than 3 percent each year in the coming years, you should either provide for repayment changes or choose a slightly higher repayment rate from the start. If you both work full-time, your income will be over 8000 net in a few years and over 9000 net in 10 years.

In my estimate, I have not yet taken into account the step increase every two years. In that respect, you will certainly have 10,000 net in 10 years if you already have 7,300 now.

I wonder why there is only 50,000 equity with that salary?

Summary:

[*]both tenured teachers
[*]net salary together approx. €7300
[*]monthly installment approx. €2500

As always with two teachers, absolutely no problem! You can easily afford it, just go for it.
(Are there teachers in the staff room without their own home? ;) )

I wonder why there is only €50,000 equity with that salary?

There are many possible reasons: long studies, vacations, Bafög debts, having the first child early, or simply spent it.

I only see a problem in this situation if luxury and consumption are the focus. With more children, you will have to cut back for a few years until you work again. But even then... Civil servant children are worth more than employee children regarding child benefit, therefore no problem *envy* ;)