ᐅ Dreaming of a House: Realistic Goal or Just Wishful Thinking?
Created on: 9 Oct 2019 00:58
T
Trinity2019
Good evening,
I have been considering for some time now fulfilling my dream of owning a home. However, there are some factors that make me doubt how realistic this really is, or how much I could afford to spend, if at all.
Here are the basic conditions:
I am 40, single, and plan to cover the entire financing on my own, both now and in the future.
No children, equity of 100,000, income currently around 4,200, with a very likely increase of 15% over the next 3 years.
My additional expenses are very low, as my employer fully covers my car and mobile phone. What is important to me is a nice garden; the house can be smaller, since I will be living alone. I could save quite a bit on the interior finishing.
So, I would appreciate your opinion and assessment... should I really go for it, or would it be better to hold off?
Best regards
I have been considering for some time now fulfilling my dream of owning a home. However, there are some factors that make me doubt how realistic this really is, or how much I could afford to spend, if at all.
Here are the basic conditions:
I am 40, single, and plan to cover the entire financing on my own, both now and in the future.
No children, equity of 100,000, income currently around 4,200, with a very likely increase of 15% over the next 3 years.
My additional expenses are very low, as my employer fully covers my car and mobile phone. What is important to me is a nice garden; the house can be smaller, since I will be living alone. I could save quite a bit on the interior finishing.
So, I would appreciate your opinion and assessment... should I really go for it, or would it be better to hold off?
Best regards
Maschi33 schrieb:
Can someone explain the issue to me? I don’t really understand it here. In Germany, have we really reached the point where people with nearly 100,000 euros annual income can no longer afford to buy a home to live in themselves? I don’t think we are quite there yet.
Conclusion: If not you, then we seriously have to ask: who else?Well, this is actually a question that should have been asked for several years now!Sounds silly, but it’s true.
Earning 5,000 euros net per month won’t get you far anymore in cities like Hamburg, Munich, Cologne, Frankfurt, etc.
Sad but true.
Of course, with 100,000 euros net per year, the situation looks different...
Maschi33 schrieb:
Can someone explain the issue to me? I don’t quite understand it here. In Germany, are we really at the point where people earning nearly 100k per year can no longer afford to buy a home for themselves? I don’t think we’re quite there yet.
Conclusion: If not you, then seriously ask yourself: who else? In urban areas, the answer is—at best, with many compromises.
Just look at what even a newly built semi-detached house on a tiny lot costs in the cities. You’re looking at a purchase price of 600,000 euros plus additional costs and a bit of extras reaching around 700,000 euros. Sometimes you don’t even get your own driveway, but have to share a large parking lot with 3 to 5 other semi-detached homes, and still have to carry your groceries as far as you would in a fourth-floor apartment.
If you haven’t inherited something, been extremely frugal right from the beginning of your career, or have a very good job, you will never be able to afford a suitable property. Even 65m² (700 ft²), three-room apartments on main streets are selling for 400,000 to 500,000 euros.
@Farilo
I wouldn’t compare the USA to Germany...
1) In the USA, financing is variable; they don’t have fixed interest periods like in Germany. This means if the interest rate is 1% today and the borrower can pay the installments comfortably, a rise to 2% a few months later might make it unaffordable for some, potentially causing a domino effect.
2) In the USA, financing often includes not only the house, additional costs, and a new kitchen but also a new car—or even two (the wife wants one too)! Combine that with point 1, and you get a toxic cocktail.
In Germany, it’s different:
1) There is fixed interest periods, nowadays more commonly 15–20 years, resulting in constant installments.
2) Often, by the end of the fixed interest period, half or more of the loan is already paid off.
Since the introduction of the German Mortgage Credit Directive (Wohnimmobilienkreditrichtlinien) in 2016, the situation has become even stricter. Besides the long fixed interest periods, banks have additional verification mechanisms, such as:
- After the fixed interest period, the remaining loan amount is checked, or whether the customer can afford installments at 6–8% (annuity). If the calculation turns negative, the loan is declined.
- If the loan term (not the interest period) extends into retirement age (for example, at 2% repayment, the term is 35 years and the customer retires after 30 years), the bank must verify based on retirement income whether the borrower can pay the installments during retirement; if not, the loan is declined.
Income:
Well, if someone is single in Germany and earning over 60,000 EUR gross, the top tax rate applies... so there isn’t much left from the gross income (at 100,000 EUR, about 4,200 EUR monthly, roughly half goes to taxes and contributions).
In metropolitan areas, you’re basically forced to have dual incomes to afford something decent, or you inherit ))
I wouldn’t compare the USA to Germany...
1) In the USA, financing is variable; they don’t have fixed interest periods like in Germany. This means if the interest rate is 1% today and the borrower can pay the installments comfortably, a rise to 2% a few months later might make it unaffordable for some, potentially causing a domino effect.
2) In the USA, financing often includes not only the house, additional costs, and a new kitchen but also a new car—or even two (the wife wants one too)! Combine that with point 1, and you get a toxic cocktail.
In Germany, it’s different:
1) There is fixed interest periods, nowadays more commonly 15–20 years, resulting in constant installments.
2) Often, by the end of the fixed interest period, half or more of the loan is already paid off.
Since the introduction of the German Mortgage Credit Directive (Wohnimmobilienkreditrichtlinien) in 2016, the situation has become even stricter. Besides the long fixed interest periods, banks have additional verification mechanisms, such as:
- After the fixed interest period, the remaining loan amount is checked, or whether the customer can afford installments at 6–8% (annuity). If the calculation turns negative, the loan is declined.
- If the loan term (not the interest period) extends into retirement age (for example, at 2% repayment, the term is 35 years and the customer retires after 30 years), the bank must verify based on retirement income whether the borrower can pay the installments during retirement; if not, the loan is declined.
Income:
Well, if someone is single in Germany and earning over 60,000 EUR gross, the top tax rate applies... so there isn’t much left from the gross income (at 100,000 EUR, about 4,200 EUR monthly, roughly half goes to taxes and contributions).
In metropolitan areas, you’re basically forced to have dual incomes to afford something decent, or you inherit ))
It’s nice for homeowners when property prices rise and you could sell your house for more than you paid, but usually, that’s not the main goal. You want to live there! The increase in wealth is essentially only on paper, and at best, when refinancing, you might benefit from a better ratio of remaining debt to value. Otherwise, you still have to make the monthly payments.
Recently, just for fun, I checked Immowelt to see what kind of house I could buy in my city. There are basically no plots available (well, there is one for 300,000 euros with a semi-detached house that needs to be demolished). Within my budget, the only offer was a rather old semi-detached house with 80m² (860 ft²) of living space and significant renovation needs. The plot was about the same size as mine—I only got a new single-family house with 100m² (1,076 ft²) of living space for the same price. Everything else was at least one-third more expensive. I guess I could also put my house on the market with a comfortable 20% markup (no value loss after first occupancy!) and sell it… but what would I do with the money? For me, the important thing is that I now have to cover the monthly mortgage and additional costs.
The original poster (OP) is probably in a very good position as a single person with that income… but unfortunately, you have to consider the location where the income is earned, and that’s where it becomes more challenging. I estimate that with equity, one could only realistically afford around 500,000 euros, but after deducting the acquisition costs (which can significantly reduce the budget, including broker fees and property transfer tax), it’s less. Now the question is whether something suitable can be found. If yes – it works, if not – it doesn’t.
Recently, just for fun, I checked Immowelt to see what kind of house I could buy in my city. There are basically no plots available (well, there is one for 300,000 euros with a semi-detached house that needs to be demolished). Within my budget, the only offer was a rather old semi-detached house with 80m² (860 ft²) of living space and significant renovation needs. The plot was about the same size as mine—I only got a new single-family house with 100m² (1,076 ft²) of living space for the same price. Everything else was at least one-third more expensive. I guess I could also put my house on the market with a comfortable 20% markup (no value loss after first occupancy!) and sell it… but what would I do with the money? For me, the important thing is that I now have to cover the monthly mortgage and additional costs.
The original poster (OP) is probably in a very good position as a single person with that income… but unfortunately, you have to consider the location where the income is earned, and that’s where it becomes more challenging. I estimate that with equity, one could only realistically afford around 500,000 euros, but after deducting the acquisition costs (which can significantly reduce the budget, including broker fees and property transfer tax), it’s less. Now the question is whether something suitable can be found. If yes – it works, if not – it doesn’t.
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Buchweizen11 Oct 2019 11:43Farilo schrieb:
A friend of mine rented a single-family house right in the middle of Hamburg, about 230 sqm (including a fully finished basement) (about 2475 sq ft), with around 250 sqm (about 2690 sq ft) of garden, a pool, sauna, completely renovated, including a garage for 2 cars and a carport, for 2600 EUR per month.
At first, I tried to argue against it... But by now, if I didn’t own a fully paid-off house myself, I would personally lean toward renting as well. And if you don’t like ANYTHING, just call the landlord or simply move on to the NEXT one. Rent the very next place directly.
That sounds easy to say, but first, there need to be interesting houses available for rent. It probably also depends on the location. Here, you can really forget about that.
Besides, very few people would spend that much money on a rental property.