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
Alessandro23 Sep 2020 15:24Alibert87 schrieb:
Right now, we just feel pressured because prices keep rising, and we don’t want to regret in two years that we didn’t buy anything and now have to pay 100,000 more. The market situation is simply crazy at times: At 600,000, I’m not talking about luxurious villas or anything like that. Life is too short to always wait for the perfect moment. Of course, it’s frustrating if a bubble bursts like in 2008, but what can you do? Such things can’t really be influenced or predicted.
A
Alibert8723 Sep 2020 15:28Ybias78 schrieb:
The question is whether:
A) you can get a property for that amount
B) how much you would still need to invest
600,000 euros should be possible considering your salaries and equity. That’s right. In my opinion, 600,000 euros is already quite a lot, but if we want to get involved, there’s no other way. Since our landlords are rather old, we don’t know what will happen afterward (the heirs live far away and could just sell the property, and we would have to move out – something we want to avoid).
N
neo-sciliar23 Sep 2020 15:40I read "possibly a second child in 3–5 years." This likely means that one income will be lost for several years.
Regarding equity and how banks handle it: they have loan-to-value limits, and if you exceed these, the interest rate increases due to the higher risk. These limits usually range between 60% and 80%, depending on the bank. When buying a house, keep in mind that renovations, modifications, and new furniture will also be needed. Additionally, there are additional purchase costs (such as closing costs or taxes). These can quickly add up to tens of thousands of euros. I have always planned for 15–20% of the purchase price for additional costs and personal preferences. This can quickly deplete your equity.
Financing €600,000 (about $640,000) over 25 years results in roughly €2,400 (around $2,560) per month. Is that really feasible?
Regarding equity and how banks handle it: they have loan-to-value limits, and if you exceed these, the interest rate increases due to the higher risk. These limits usually range between 60% and 80%, depending on the bank. When buying a house, keep in mind that renovations, modifications, and new furniture will also be needed. Additionally, there are additional purchase costs (such as closing costs or taxes). These can quickly add up to tens of thousands of euros. I have always planned for 15–20% of the purchase price for additional costs and personal preferences. This can quickly deplete your equity.
Financing €600,000 (about $640,000) over 25 years results in roughly €2,400 (around $2,560) per month. Is that really feasible?
N
nordanney23 Sep 2020 15:46Alibert87 schrieb:
A quick question about equity: Do banks offer tiered conditions so that with, for example, an additional 10,000 in equity, you get a better loan (how are these tiers structured)? There are indirect tiers. These depend on the loan-to-value ratio, which is the ratio of financing to the appraised value of the property according to the bank. It can be that an extra 5,000 in equity moves you just below the 80% threshold (if you were just above it before). Or you might need 30,000 more if you are far from that threshold.
Alibert87 schrieb:
We are really torn about whether we should take this step. It feels very surreal to "spend" so much money on housing. Think of it as an exchange. The money isn’t gone; it’s just tied up in a valuable property.
Alibert87 schrieb:
The median price of the properties we are considering (house or condominium) is 600,000. Alibert87 schrieb:
Equity is about 110,000 (+ 30,000 as a buffer) So, your equity will almost be used up by the additional costs when buying. This means you will have a relatively large mortgage, which will be comparatively expensive.
A loan of around 575,000, over 30 years (which suits your age), would have a monthly payment of about 2,100. This should be manageable with your income (depending on your lifestyle and current rent situation).
nordanney schrieb:
There are indirectly tiered levels. These depend on the loan-to-value ratio—the ratio of financing to the property’s value according to the bank’s appraisal. It might be that an additional €5,000 (about $5,400) in equity pushes you just below the 80% threshold (if you were just above it before). Or you may need €30,000 (about $32,400) because you’re far from that point.
Think of it as a trade-off. The money isn’t gone; it’s just tied up in a valuable property.
So, your equity will almost be used up by the additional purchase costs. This means you’ll need a relatively large loan, which will be comparatively expensive. The loan amount would be around €575,000 (about $620,000), with a 30-year term (which suits your age), and a monthly payment of about €2,100 (around $2,260). This should be affordable given your income (depending on your lifestyle and current rental situation). Don’t forget the additional monthly costs of about €300–400 (approximately $320–430). So overall, you’re looking at around €2,500 (about $2,690) per month for a used property.
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Alibert8723 Sep 2020 15:51neo-sciliar schrieb:
I read "possibly a second child in 3-5 years." That probably means one income will be lost for several years.
Regarding equity and how banks handle it: they have lending limits, and if you exceed those, the interest rate increases due to higher risk. These limits usually range between 60% and 80%, depending on the bank. When buying a house, keep in mind that renovations, modifications, and new furniture will also be necessary. Plus, there are additional purchase costs. This can quickly add up to several tens of thousands of euros. I have always planned for about 15-20% of the house price for additional costs and personal wishes. That means your equity can run out quickly.
Financing 600,000€ (about 650,000 USD) over 25 years means roughly 2,400€ (2,600 USD) per month. Is that really manageable?
That the income would be lost. Then two child benefits and parental allowance.
Are you saying our equity will be completely used up by additional costs, renovations, and furniture purchases? At 2,400 euros per month, I feel uncomfortable—how do you arrive at that number?