Hi,
I am reading here since some time and we (my wife and me) are thinking about getting a house a lot in the last couple of years. To have some background information: We are from Germany. Unlike in the US, it is not so typical that everyone is living in a house. A lot of families are living in appartments in the citites. This is more typical and a house is considered luxury and not neccesary a little bit.
We are earning 46.000 EURO after taxes and medical insurance costs as fixed income and maybe 5.000 EURO in variable income due to secondary jobs. We have one kid, one year old. We are currently living in an appartment which is too small. We are missing at least one bedroom. We, both, are 30 years old.
We have already bought a parcel of land, which costs about 125.000 EUR. This was bought with all our current net worth (including even some projected tax refund, which is for 2016, but which we will receive in 2017 = but it is already our money due to overpayment to the government), so we have 125k EUR at the moment. The land is in an area, which has high demand. We could also sell it for the same or maybe a little bit higher price (maybe 135k worth already).
Used homes are not widely available here. First, as mentioned, people here are not usually buy or build homes. And, homes build before 1990 are of very bad quality. Because of the regulations and government rules, a lot of toxic waste are build into houses of this age. In the 1990s, not much houses were build. So the used house market is pretty empty. Prices are the sames as for building a new house.
We have projected that we would need to pay another 325.000 EURO to build a new house including 3 bedrooms, one work room, no basement, 2000 sqft. It would have a very low energy usage for heating (which is a big concern in Germany; energy costs 30 USD-Cents per kWh).
Government grants some grants and gives us a mortgage with intererst rate of 0,98%. This would mean we would pay 3.200 EUR interest in the first year and declining as we settle the mortgage month by month and year by year. Since the interest rate is so low, I would settle as little as possible, but government demands 10.000 EUR settlement payment per year (and more, as the interest payment decreases). They also give us 5.000 EUR one-time-payment. So we need 320k EUR, not 325k EUR.
Other options:
- Rent a home: 14.000 EUR to 17.000 EUR
- Rent appartment without work room and only 2 bedrooms: 9.500 EUR in best case (we want to have two kids, so this is only a option for limited time)
But if we choose the other options, we would have 125k EUR to invest in the stock market. I am really confused a little bit. Of course, when we build a house, we would pay no rent and the interest payment is very low. So we would gradully own more and more of the house, which is valued at something like 500k EUR (after we build the garden, terrace and some stuff around).
Other financing options:
- 5.000 EUR interest payment (instead of 3.200 EUR)
- 3.300 EUR settlement (instead of 10.000 EUR)
- no government grant of 5.000 EUR (one time payment)
- but a lot more residual debt and a much higher interest rate (1,52%)
- Total yearly payment 8.300 EUR instead of 13,200 EUR
- 15 years fixed contract (15 years we could invest almost 5.000 EUR more money in the stock market; but a lot more debt in the mortgage at the end)