Is project ownership financeable?

Hello dear members,

we (34/30) are currently assessing our finances to check whether we realistically have a chance to own property at all. We would like to purchase a condominium, preferably a new build. What we have seen so far on usual portals, the purchase price always lies between €400,000 and €480,000 including incidental costs in the Frankfurt area.

monthly income, both permanent:

Me: ~€3000 + €200 (monthly bonus, which is fixedly granted for X years, quite certain)
Her: ~€1000 (part-time)

Annual bonus I am leaving out (~€5000)

Income thus at €4342 (including child benefit)
Monthly expenses (excluding rent with heating): future €1200/month, temporarily due to daycare for sick children at €1530 = including

Insurances
Hairdresser
Daycare for sick children
Cars (company car already deducted from salary above)
Food, diapers, etc.
Mobile contracts

Our family planning is complete with 1 child

We have saved ~€130,000. However, I would only want to use about ~€100,000 as equity.

I feel quite good about it because we would have quite a lot of buffer, even with a higher repayment. We are also quite good savers; we lack nothing.

We are security-conscious, so we don’t want to live on the edge.

How do you evaluate this from your experience?

At a purchase price of 400K and 100K equity, I find that quite a solid thing.

Option A: security-oriented, 300K loan
according to WWW: 20 years fixed: 1.84% interest, 3.14% repayment - monthly rate 1250€
remaining debt after 20 years: 71K€, total duration approx. 24.9 years

25% equity share, rate about 30% of net income
+ through your bonus you could shorten the term a bit with special repayments.

Option B: slightly higher risk due to a higher rate, more equity +15K
loan 285K, equity 115K
according to WWW: 15 years: 1.41% interest 4.5% repayment - monthly rate 1403€
remaining debt after 15 years: 71K€, total duration: 19.3 years

28.75% equity, rate about 32.5% of net income

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If the purchase price leans more towards 480K, I see that more critically.
380K loan with a 4.3 net, phew.
Due to age, I would not let the loans run longer than 25 years.
That only works with a monthly rate >1500€
Including ancillary costs + maintenance, you get close to 2K€ just for living.
I personally find that too much.

The maximum loan amount can be determined as follows:

On the internet, there are tables for the repayment period based on the combination of interest + repayment.
So how long is the repayment period at which interest rate and which repayment rate.
Both form the annuity.

For example, interest rate 2% + repayment 3% = 5% annuity
Repayment period according to the table 25.7 years
At 4% repayment, interest 2% -> 20.3 years

With a fixed monthly rate, the maximum loan amount can then be calculated.

Example: €1250 x 12 = €15000 / (5 - annuity) = €3000 * 100 = €300K total loan
At 6% annuity: €250K loan

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So, to manage higher loans (400K), either the monthly rate must be increased (higher risk) or the annuity must be lowered (longer term).

Thank you for your contributions, I will take a quiet moment to review them carefully.

A few questions for clarification:

Does it make sense to save for another 3-4 years to increase the equity? Ultimately, the "rent" is lost until then to pay off the loan.

If I take out a loan of €350k, I can keep the installment within 30-40% of net income, possibly lower, by making low repayments. It is clear that this also results in a high total interest amount. I would reduce the interest total/term through our frugal lifestyle with annual Sondertilgungen. We are good savers without necessity.

The risk, of course, is the obligation to make additional payments (risk weighting depends on the Sondertilgung) and other unforeseeable setbacks, such as unemployment, illness, etc. But I am also stuck there. Because rent has to be paid anyway. And it would rather be higher than lower in my area.

Do I have a logical error anywhere regarding the risks?

A few questions for clarification:

Does it make sense to save up for another 3-4 years to increase the equity? Ultimately, the "rent" is lost during that time to pay off the loan.

If I take out a loan of 350k €, I can keep the installment within 30-40% of the net income through low repayments, possibly even lower. Of course, this means that the total amount of interest will be high. I would reduce the interest sum/term through our frugal lifestyle by making annual extra payments. We are good savers without any hardship.

The risk, of course, is the obligation to make additional payments (risk weighting depends on the extra payments) and other unforeseeable misfortunes, such as unemployment, illness, etc. But I'm stuck either way. Because I have to pay rent anyway. And it would be rather higher than lower in my area.

Do I have any logical error regarding the risks?

The question of how much equity you should use can only be answered if you know how much you need to borrow.

The interest improvements through equity vary from bank to bank. Roughly, you can say that below 100%, 90%, 80%, and below 60% loan-to-value ratios, there are better interest rates. With a loan-to-value ratio of 81%, you don't get the under 90% interest rate, let alone under 80%.

So without an exact loan-to-value ratio, no statement can be made. The loan-to-value ratio also relates to the pure purchase price, i.e., already minus notary, land registry, property transfer tax, broker fees, etc. (incidental purchase costs).

That means if the condominium costs 480k€ and you have 100k€ equity, then 60k€ alone go to incidental purchase costs in the example of NRW. That leaves 40k€ to improve the loan-to-value ratio. That would then be a 91% financing.