House purchase with the budget yes/no?

Hello dear forum community.... After a long time of "just" reading, I have now decided, also due to a current reason, to post and hope to receive a good opinion through many different answers.

About the project:

My girlfriend and I (both 30, childless) have found our dream/wish property after some searching. It is a bungalow, whose attic can be developed, but is currently completely empty except for the screed floor. Also, the roof is not yet insulated. The bungalow is 15 years old and otherwise meets all our wishes, so apart from some new wallpaper on the ground floor, nothing else needs to be done. As a nice addition, it should be mentioned that this bungalow stands on a 3500sqm plot in the countryside... exactly our dream.

The whole thing is supposed to cost 240,000 euros. We have calculated further, the real estate transfer tax is 5%, so 12,000 euros. I can’t really estimate the notary costs; for our calculation, we assumed 2.5%, i.e. 6,000 euros. Now the attic is to be developed, which means insulating the roof, roof windows for 3 rooms, drywall and heating (heating system is already installed in the upper floor). I will do wallpapering and flooring myself. We roughly estimated about 30,000 euros for this. Possibly this amount is also way too high... I can’t estimate that yet but we prefer to calculate a bit too much rather than getting into trouble with the whole financing because we planned too optimistically.

So a total amount of 288 - 300k euros is to be borrowed (also here, better to calculate with 300; if it ends up less, even better).

Now to our financial situation:

Both civil servants with lifetime tenure and a current net monthly income of 4,800 euros (for me it will increase by about 200 euros from 2016, but I don’t want to include that yet).

Also, 2 children are planned within the next 4-5 years, so one salary will shrink to 60% for a while, leaving a net monthly income of 3,760 euros.

We have calculated our monthly expenses down to the smallest detail and have generally rounded generously. We currently pay a cold rent of 590 euros and are paying off a car loan with 285 euros until mid-2016 and another with 300 euros until mid-2017 (private loans). I am currently paying 175 euros monthly into a residential Riester savings plan. An allocation-ready savings plan with 3% interest and a current credit balance of 20,000 is available as well as about 8,000 loose capital in checking accounts.

Including everything we need to live on, we come to an amount of 3,180 euros monthly, including the mentioned car repayments and rent, plus all insurances, fuel, phone, mobile phone, and so on.

If you subtract the current rent from this, a remaining 2,200 euros per month from the salary remains; from 2017 (end of the car loans) it will be correspondingly 2,785 euros with the same financial situation.

Can we afford the above-mentioned dream property with this? If yes... what financing concept would be recommended? We want to keep the repayments as low as possible so that there is always something left for financial bottlenecks. The possibility of special repayments should also be an important aspect.

I have now written a lot off my chest and we have great respect for borrowing such a large sum of money, so I hope for constructive advice, criticism or anything you want to share about this.

Yes, you can. Equity available - otherwise the interest rate won't be that great - ... especially since used properties are not necessarily always valued at 100%. Still, yes.

Car loans cannot be factored out. Once the car is paid off, the warranty usually ends and repairs follow. A new car will eventually come as well. A car costs simply about ~~500€ (roughly Golf class with a few extras, 12,000-15,000 km/year) all included. It's not worth trying to sugarcoat that.

As a simple rough calculation, 100,000€ loan = 500€/month financing was always used here.

And since it always comes up anyway: if you have 1800€ left per month, then where is your equity?!

So on the topic of the car: I subtract the pure loan because it then no longer really exists.

You may well be right about repairs etc. … and your stipulated 500 euros can gladly remain included in the calculation.

I should have answered the question about equity earlier… several factors come together. First, there are the two cars, which have consumed part with a good 20,000 euros of equity, and a semi-detached house where we now live, which we furnished and equipped about a year ago with around 20,000 euros of equity.

There isn’t much left over. What I forgot to mention is that about 4,000 euros have already been saved on the Wohn-Riester.

At least gather enough equity for initial sundry costs like building permits, notary, etc. With €5k net, you can currently easily handle €300k – even €600k – so don’t let yourself get stressed. The only critical point in your project is how the bank values the building – especially regarding the modernization (sometimes only two-thirds is recognized as value-increasing). In this case, a bank that accepts KfW in subordination might be recommended – this improves your loan-to-value ratio. Alternatively, finance only the house and do the rest without financing (this would certainly be more feasible).

Can we afford the above-mentioned desired property?

Income-wise, no problem. However, the loan-to-value ratio will be very high, possibly even greater than 100%. You should therefore promptly speak with a local bank (in my opinion, they are a good contact for existing properties) and/or a broker (Interhyp ...). Briefly present the property (building description, standard land value, preferably already with documents) and your circumstances (proof of income). Then they will tell you how much credit is possible and how much may need to be financed subordinately (e.g., via an investment bank). If possible, provide other securities (parents' house? family loan?) to reduce your loan-to-value ratio (towards 90% ...).