ᐅ Is Buying a House a Wise Decision in the Current Market Situation?
Created on: 23 Sep 2020 14:32
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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
We will need a loan of about 500,000 euros. This includes a 120,000-euro KfW loan, which is planned to be paid off within 10 years. The plot of land costs around 41,000 euros. The bank loan will therefore be approximately 340,000 euros. The plan is for a total monthly payment of 1,550 euros, and by making extra payments and saving, the KfW loan should be paid off in 10 years, with the land loan even earlier. After that, the payments for both will be combined into the bank loan.
A
Alibert8724 Sep 2020 13:23I prefer to be cautiously pessimistic when it comes to finances and tend to plan for the worst-case scenario. For me, the idea of consistently paying such a high amount every month feels very unreal.
A
Alibert8724 Sep 2020 14:04Nida35a schrieb:
If paying your mortgage installment is ruining your sleep or harming your health, then don’t do it.
If your rent is already higher than your mortgage payment, that’s also an uncomfortable feeling, and it’s only a matter of time. We are in the comfortable position that, as long as our landlord is alive (unfortunately quite elderly), there will be no rent increase – they just want long-term tenants without any problems. But this situation could change quickly, which is why we are considering buying a property.
For a loan of 500,000 (and apparently, that’s the minimum you need), in my opinion, a permanent payment of 1,800 EUR (about $1,950) per month should be manageable.
If it’s about short-term income gaps (such as two years of parental leave without parental benefits), then you need to build up a financial buffer beforehand for that period. If that’s not possible, I wouldn’t feel comfortable with the financing and would consider it too tight.
According to your figures, you have about 5,500 EUR (around $6,000) monthly income. After deducting the 1,800 EUR (about $1,950) loan payment, you have 3,700 EUR (about $4,000) left for living expenses plus some extra buffer from your bonus. That should be enough for three people.
One year of parental leave for your second child could look roughly like this: you 3,000 EUR (about $3,250) (plus possibly a child allowance from the public sector?), she receives about 1,500 EUR (around $1,630) in parental benefits, plus two child benefits payments. After subtracting the loan payment of 1,800 EUR (about $1,950), about 3,000 EUR (around $3,250) remains along with some buffer from your bonus.
It only becomes truly critical if your wife stays at home for more than one year. Otherwise, I consider it manageable if you don’t have excessive spending habits.
Reducing the loan payment permanently any further strikes me as risky. A healthy initial repayment rate is about 3%. This also means a form of forced saving through the automatically deducted payment. But in the long term, I wouldn’t go with a lower repayment. If it makes you feel safer, you could arrange at least two options to adjust the repayment rate in your loan agreement. That way, you could temporarily reduce the payment during a transitional period and increase it again later.
If it’s about short-term income gaps (such as two years of parental leave without parental benefits), then you need to build up a financial buffer beforehand for that period. If that’s not possible, I wouldn’t feel comfortable with the financing and would consider it too tight.
According to your figures, you have about 5,500 EUR (around $6,000) monthly income. After deducting the 1,800 EUR (about $1,950) loan payment, you have 3,700 EUR (about $4,000) left for living expenses plus some extra buffer from your bonus. That should be enough for three people.
One year of parental leave for your second child could look roughly like this: you 3,000 EUR (about $3,250) (plus possibly a child allowance from the public sector?), she receives about 1,500 EUR (around $1,630) in parental benefits, plus two child benefits payments. After subtracting the loan payment of 1,800 EUR (about $1,950), about 3,000 EUR (around $3,250) remains along with some buffer from your bonus.
It only becomes truly critical if your wife stays at home for more than one year. Otherwise, I consider it manageable if you don’t have excessive spending habits.
Reducing the loan payment permanently any further strikes me as risky. A healthy initial repayment rate is about 3%. This also means a form of forced saving through the automatically deducted payment. But in the long term, I wouldn’t go with a lower repayment. If it makes you feel safer, you could arrange at least two options to adjust the repayment rate in your loan agreement. That way, you could temporarily reduce the payment during a transitional period and increase it again later.
Timing is a factor; many have already paid the same rent amount in Deutsche Mark, 20 years ago. A doubling of the current rent within 20 years is not unrealistic. The payment remains constant, and the difference in asset value at the end of the term equals one house, with appreciation equivalent to two houses.
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