Impact of tax class on creditworthiness

Hello,

at this moment we have the following question and hope to receive some helpful advice regarding the upcoming decision.

In broad terms, it concerns how a temporary change to an unfavorable tax class affects my creditworthiness in the context of a construction financing.

To increase the parental allowance of my pregnant wife, which is based on her net income of the last seven months before the maternity protection period, I would switch to the tax class V, which is actually unfavorable for me, until the birth of the child, and my wife to tax class III. This step would bring us a total of €3,650 more in parental allowance than if she were in tax class V (minus the increased tax due to the higher tax rate because of the progression clause).

The potential catch: We want to have purchased a property within two years at the latest, and I, as the high-earning spouse, will certainly play the decisive role in the loan approval. If a purchase option arises within the next 9 months, I would be in tax class V, which is unfavorable for me, with approximately €1,000 lower net income.

My question: What is your assessment of the role my temporarily lower net income due to parental allowance would play in the event of a necessary loan? Would the lower net income negatively affect the evaluation of my creditworthiness, even though the high deduction concerning me will be offset at the latest with the tax refund in the following year based on my tax return? Could this circumstance alone lead to higher interest rates?

Or does the choice of an unfavorable tax class not negatively impact the assessment of my creditworthiness?

We would like to thank you in advance for any advice that can shed some "light into the dark"!

Basically a correct thought, but since banks give you more money than is good for you anyway, it practically doesn't matter.

Fundamentally a correct thought, but since banks give you more money than is good for you anyway, it practically doesn't matter.

I have to disagree with that. Not least because of Corona, banks are becoming more restrictive in lending. Perhaps a standing property in an area with very dynamic price development (the bank does not follow market prices in the valuation because it depreciates with outdated standard land values and is extremely cautious), and then you are in for some fun with the bank.

But: when do you want to start financing? If you want to buy in at most 2 years, it doesn't sound like you are already active during pregnancy. After the birth, you can switch back directly. As long as the previous switch was not in the same calendar year. (Switching is generally only possible once a year) In the future, this won't matter anymore. The bank will perhaps want to see your tax assessments from previous years, but the final statement including reimbursement is all there. I think the bank then only looks at the annual gross income.

If you become active during pregnancy, of course you can always talk to the bank and explain the situation.

Well, probably principle, 2 people, 3 opinions. The bank would have thrown so much money at us - I wouldn’t have been able to sleep peacefully at night anymore if we had done something like that. We would have also gotten enough money with half the salary.

Well, probably principle, 2 people, 3 opinions. The bank would have thrown so much money at us – I wouldn’t have been able to sleep peacefully at night if we had done something like that. We would have gotten enough money even with half the salary.

Yep. And in the end completely subjective.

Without extra repayments, we might only be finished with the repayment at 65. But I can still sleep very peacefully. Others can’t even imagine that.

But in our area and at the end of 30, it hardly works any other way without an inheritance in the background.

With a specific existing property, we would have needed 30% less financing amount. But in the end, 2 banks didn’t want to play along with us.

So there are no general valid statements.

But how do you know how much money the bank would have given you? And how much they would have given you with half the salary?! No bank gives you a final loan commitment for funny number games.

My question: What is your assessment of the role my temporarily lower net income due to parental allowance would play in a possibly necessary loan application? Would the lower net income negatively affect the evaluation of my creditworthiness, even though the high deduction concerning me will be compensated at the latest with the tax refund in the following year based on my tax return? Can this circumstance alone lead to higher interest rates?

The interest rate does not depend on your net income. What matters to the bank is the ratio of your equity to the loan-to-value of the purchase property. Little equity - high interest rate. An extra €1000 per month won't earn you any bonus there. Only the maximum loan amount roughly depends on the monthly income - but both incomes are considered here. What you have too little of now, your wife has more.
I assume you are only switching from III to V, right? Otherwise, the €1000 difference will be difficult. Then your income was previously artificially "inflated" anyway and too high due to the anticipated spousal splitting.

And indeed, current salary statements and also tax assessments or declarations will be requested, possibly several. There it will become clear what is really feasible. And a banker can also calculate a net income from a gross salary using different tax classes.. ;)