ᐅ Is Buying a House a Wise Decision in the Current Market Situation?
Created on: 23 Sep 2020 14:32
A
Alibert87
Good day and hello everyone,
Some time ago, I joined this forum to gather information and read experience reports.
I would like to get your neutral opinion on whether buying property at this time would be advisable. We currently rent in a "very good location" and would like to purchase a home here. Many properties are sold "off-market" or only available at very high prices (I’m talking well over 500,000). There is no land available for development; if there is, a property is demolished and rebuilt. I want to gather some input on whether this whole situation is crazy or if such a project is feasible.
Since we don’t have a specific property in view yet but have been monitoring the market for about 1.5 years and have already done quite a few viewings, I assume the median price for homes or condominiums that suit us would be around 600,000.
He, 33 years old, permanently employed in the public sector, net income 2,600 euros (plus 14 monthly payments plus bonus, around 5,000) – from 2021 about 3,000 net (fixed)
She, 32 years old, permanently employed part-time, 25 hours per week, net income 2,300 (plus additional payments around 2,000)
1 child (child benefit) – possibly a second child within the next 3–5 years
Married, tax class 4
Equity around 110,000 (plus 30,000 as a buffer)
Regarding equity, I have a question: Are bank conditions tiered, so that having, for example, 10,000 more in equity results in a better loan offer (how does this tiering work)?
We are really torn whether or not to take this step. It feels very surreal to spend so much money on housing.
I am grateful for any advice
Regards
Some time ago, I joined this forum to gather information and read experience reports.
I would like to get your neutral opinion on whether buying property at this time would be advisable. We currently rent in a "very good location" and would like to purchase a home here. Many properties are sold "off-market" or only available at very high prices (I’m talking well over 500,000). There is no land available for development; if there is, a property is demolished and rebuilt. I want to gather some input on whether this whole situation is crazy or if such a project is feasible.
Since we don’t have a specific property in view yet but have been monitoring the market for about 1.5 years and have already done quite a few viewings, I assume the median price for homes or condominiums that suit us would be around 600,000.
He, 33 years old, permanently employed in the public sector, net income 2,600 euros (plus 14 monthly payments plus bonus, around 5,000) – from 2021 about 3,000 net (fixed)
She, 32 years old, permanently employed part-time, 25 hours per week, net income 2,300 (plus additional payments around 2,000)
1 child (child benefit) – possibly a second child within the next 3–5 years
Married, tax class 4
Equity around 110,000 (plus 30,000 as a buffer)
Regarding equity, I have a question: Are bank conditions tiered, so that having, for example, 10,000 more in equity results in a better loan offer (how does this tiering work)?
We are really torn whether or not to take this step. It feels very surreal to spend so much money on housing.
I am grateful for any advice
Regards
A
Alibert8723 Sep 2020 15:57nordanney schrieb:
There are indirect gradations. These depend on the loan-to-value ratio, which is the relation between the financing and the property’s value according to the bank’s appraisal. Sometimes an additional €5,000 (approximately $5,500) in equity can push you below the 80% threshold (if you were just above it before). Other times, you might need €30,000 (approximately $33,000) because you’re far from that level.
So your equity almost goes entirely toward the additional purchase costs. This means you will have a relatively high loan amount, which is relatively expensive.
A loan of about €575,000 (approximately $630,000), with a 30-year term (appropriate for your age), results in a monthly payment of around €2,100 (approximately $2,300). This should be manageable given your income (depending on your lifestyle and current rental situation). Thank you for explaining the equity! I have that in mind now.
We could continue to save more equity, but property prices are always rising (likely). It doesn’t help me if, in two years, I have €50,000 (approximately $55,000) more equity but the house costs €100,000 (approximately $110,000) more (although I find that hard to imagine).
Alibert87 schrieb:
It’s no use to me if I have 50,000 more in equity in two years but the house costs 100,000 more (even though I find that hard to imagine).To broaden the perspective on how high prices can go, a quick look at the current purchase prices in the Munich metropolitan area helps. At least, in my perception, the price increase seems to be stabilizing or slowing down somewhat at this very high level.
So, 600,000 euros is really not much money for a house anymore. A new build is probably off the table, so you’re looking at existing properties? That will be difficult, as you said, most of them are already sold off the market. But owning property is more in demand than ever. Good luck!!
H
Hausbautraum2023 Sep 2020 20:51So, we are just starting our house construction project, which will have a total volume of at least 720,000€ (about $777,000).
Our net income is 5,000€ (plus Christmas bonus…), so it’s quite comparable.
Our equity is 200,000€, higher than yours.
Our monthly payment will be 1,800€ plus additional repayments.
The payment amount does not worry us personally at all, but that is something only you can decide for yourselves.
What concerns us most is that the construction costs are not precisely predictable, and the financing amount is already high compared to our net income, leaving little room for flexibility.
We would have preferred an existing house, but for 720,000€ (about $777,000) we would have gotten a semi-detached house from 1985 with 130 square meters (about 1,400 square feet) of living space and 250 square meters (about 2,700 square feet) of land. We have now bravely decided to take the riskier path.
The good argument regarding future children should be considered individually.
For us, daycare fees would still be somewhat affordable, grandparents are nearby, there is childcare allowance in Bavaria and as civil servants we receive a child supplement. Also, due to good working hours, both of us could soon return to full-time work. Salary increases are foreseeable, and in 10 years the 1,800€ (about $1,940) payment will be much easier to manage.
But the issue of owning a house probably has to be very important to make this whole thing worthwhile at such a sum.
For us, owning our own home is extremely important, and we are willing to give up a lot for it. Not everyone sees it this way.
Our net income is 5,000€ (plus Christmas bonus…), so it’s quite comparable.
Our equity is 200,000€, higher than yours.
Our monthly payment will be 1,800€ plus additional repayments.
The payment amount does not worry us personally at all, but that is something only you can decide for yourselves.
What concerns us most is that the construction costs are not precisely predictable, and the financing amount is already high compared to our net income, leaving little room for flexibility.
We would have preferred an existing house, but for 720,000€ (about $777,000) we would have gotten a semi-detached house from 1985 with 130 square meters (about 1,400 square feet) of living space and 250 square meters (about 2,700 square feet) of land. We have now bravely decided to take the riskier path.
The good argument regarding future children should be considered individually.
For us, daycare fees would still be somewhat affordable, grandparents are nearby, there is childcare allowance in Bavaria and as civil servants we receive a child supplement. Also, due to good working hours, both of us could soon return to full-time work. Salary increases are foreseeable, and in 10 years the 1,800€ (about $1,940) payment will be much easier to manage.
But the issue of owning a house probably has to be very important to make this whole thing worthwhile at such a sum.
For us, owning our own home is extremely important, and we are willing to give up a lot for it. Not everyone sees it this way.
A
Alibert8724 Sep 2020 09:10Hausbautraum20 schrieb:
We are just starting our house building project, which will end up costing at least 720,000€ (approximately 770,000 USD).
Our net income is 5,000€ (plus Christmas bonus...), so it's quite comparable.
Our equity is 200,000€, higher than yours.
Our monthly payment will be 1,800€ plus extra repayments.
The payment amount does not worry us at all personally, but only you can decide what works for you.
What worries us most is that construction costs are not precisely predictable, and the financing amount is already high compared to our net income, leaving very little room for flexibility.
We would have preferred an existing house, but for 720,000€ (approximately 770,000 USD) we would have gotten a semi-detached house from 1985 with 130 square meters (1400 square feet) of living space and 250 square meters (2700 square feet) of land, so we boldly decided to take the riskier path.
The valid point about children to come also needs to be considered individually.
For us, childcare fees would still be somewhat affordable, grandparents are nearby, there is Bavarian childcare allowance, and as a civil servant, I receive a child supplement. Also, thanks to good working hours, we could both return to work sooner and work more. Salary increases are also foreseeable, and in 10 years, the 1,800€ payment will be much easier to manage.
But a house probably has to be very important to you for such an amount to make sense.
Owning our own house is very important to us, and we are ready to give up a lot for it. Not everyone sees it that way. Thank you for the honest words.
I guess the last sentence is the key point. We like the idea of ownership, and having our own garden is appealing. But I don’t see a house as a status symbol or something essential (“I don’t have to own a house”). Taking on such a large amount of debt is certainly tough.
That’s why moving into a townhouse on the outskirts of town is not an option for us; if we are going to invest so much money, it has to be in our preferred location.