Author Topic: Setting max budget for house purchase  (Read 687 times)

Treedream

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Setting max budget for house purchase
« on: March 07, 2023, 04:34:55 AM »
I have started looking for an apartment to buy and I wanted to get some insights into what is financially wise.

I am 31 years old and based in The Netherlands.

I currently have about:
7k in investments
17k in savings
29k gift towards the house from parents

I can get a maximum mortgage of 200K. There is no need for a downpayment in NL, but we do have to pay for closing costs, which I estimate between 6 and 8K.

Buying an apartment with a 200K mortgage would mean my final expenses for mortgage, yearly taxes and bills would be about the same as my current rent and subsequent costs. Except, I'd have a house after 30 years.

Now my father is suggesting to consider the maximum budget I have for a well painted and decorated house (so not too much costs in order to make it liveable) as I am at the bottom bracket of the market and want to buy something that will work for me for the next 10 years. Doing the math I get to 245K with nothing left behind, except monthly earnings and saving going forward, which I estimate for the coming 4 months to be about 5K. My parents have explicitely offered to also be my safety net in place of having no emergency fund. They are well of and that would not pose any problem for them.

What max budget would you set?

Sibley

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Re: Setting max budget for house purchase
« Reply #1 on: March 07, 2023, 03:01:05 PM »
Houses need maintenance. Just because it looks pretty on the outside doesn't mean it won't need something. If there is no flexibility in your finances for repairs or maintenance, then you will be in trouble later. The details will vary, and I have no idea how it works in The Netherlands, but those basics are universal.

ChpBstrd

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Re: Setting max budget for house purchase
« Reply #2 on: March 08, 2023, 04:31:34 PM »
Let's go back to first principles: Why should you buy the most expensive house you could afford?

1) Is it because the 200k apartment would not be nice enough and you would suffer to live there?
2) Is it because you'll eventually be selling the 200k apartment to buy the 245k house in a few years?
3) Is it because you and/or the parents think the 245k house will appreciate faster?
4) Something else?

I'm looking for the rationale for why you should be asking "what's the most I can afford to spend?" instead of "what's the least I can afford to spend?"

If #1, maybe you should keep saving until you can afford something nicer. Then again, some people buy a starter home and turn it into a rental when they upgrade (and the upgrade is enabled by saving money on housing for a few years). Pick a path.

If #2, there is a good case to be made that you should avoid paying another set of transaction costs. Just make damn sure you don't buy the wrong house (e.g. too far from your destinations, area is too boring or lively, too much / too little space).

If #3, that's a shaky and speculative assumption. With today's bond yields, it's time to play it safer.