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How much house can I afford?
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Find your financial home: Discover how much real estate truly fits within your budget.
Strategies and tips to secure the best financing solution for your home.
Analyzing income and expenses
Look at your regular net income and subtract your monthly expenses from it. Remember to include all obligations and living costs to figure out how much you have available monthly for real estate financing.
Include equity
Determine how much equity you have available. It is recommended to finance at least 20% of the purchase price plus the additional costs (such as property transfer tax, notary, and real estate agent fees) from your own funds.
Consider additional costs
Don't forget to include the additional costs of buying real estate in your calculations. These can amount to up to 15% of the purchase price, and it's ideal if you can cover these costs without external financing.
Consider future financial obligations
Think about future expenses such as child-rearing, education costs, or retirement planning. Your financial planning should be flexible enough to account for such future changes.
Reserves for unforeseen expenses
Set aside financial reserves for unforeseen expenses such as repairs or maintenance of the property. It is often recommended to have a buffer of at least three net monthly salaries.
Determine financing leeway
Use a budget calculator to calculate your maximum financial flexibility. It is advisable not to fully utilize it in order to maintain financial flexibility for unexpected life events.
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In a world where owning a home is not just a place to live, but also a significant financial commitment, the question "How much house can I afford?" is of great importance. Given rapidly changing markets and unpredictable economic developments, it is crucial to take an informed and well-thought-out approach when purchasing a property. Our goal is to provide you with the necessary knowledge in this article, along with practical calculation tools and personal advice, to make informed decisions for your financial future.
How much property can I afford?
The decision to buy a property is a significant financial commitment that many people make in their lives. Therefore, it's important to have a clear understanding of how much you can afford without jeopardizing your financial stability.
To realistically assess the appropriate amount for a property, you should thoroughly examine your financial capabilities. In addition, a solid understanding of real estate financing is of great importance and forms the basis for any successful project.
"At Vier Wände, thanks to their excellent advice on the question 'How much property can I afford?', I found the perfect home that matches my budget and my dreams - an outstanding experience!"
Julia S.
For a well-informed decision and support in real estate financing, practical tools and personal advice are available to you. Use our calculation tools to get an idea of how much you can afford, and consult expert advice if needed.
Determination of your financial capacity
Determining your financial capacity is a fundamental step before embarking on the search for your dream property. It is crucial to have a realistic picture of what you can afford to ensure that your real estate investment remains sustainable and risk-free. This process encompasses several key aspects:
Income analysis
First, you should conduct a thorough assessment of your regular income. This includes not only your base salary, but also additional sources of income such as bonuses, commissions, or side income. Consider the stability and long-term nature of your income sources. A volatile or uncertain income situation requires a more cautious approach when setting the budget for your home.
Spending overview
A thorough examination of your ongoing expenses is equally important. List all your monthly obligations – from rent payments to loan installments to cost of living. Don't forget to include items such as insurance, subscriptions, and leisure expenses. This will help you gain a clear picture of your monthly expenses and assess how much you can afford for a mortgage payment.
equity valuation
Another important aspect is the evaluation of your available equity. It is recommended to finance at least 20% of the purchase price plus ancillary costs from your own funds. Don't forget to include the incidental costs of buying a property in your calculations. These can amount to up to 15% of the purchase price, and it is ideal if you can cover these costs without external financing.
Future financial changes
Consider possible future changes in your financial situation. Are you planning a family and the associated expenses for children? Is there a career change ahead that could affect your income? Or are you expecting larger expenses in the near future, such as for a new car or a wedding? All of these factors should be taken into account in your considerations to ensure that you can easily afford your real estate financing in the future.
Understanding real estate financing
A profound understanding of real estate financing is essential to make an informed decision when purchasing a property. This knowledge enables you to evaluate the various available options and make the best choice for your individual situation. Real estate financing encompasses several core areas:
mortgage loan
Understanding the different types of mortgage loans and their terms is crucial. There are various mortgage models, such as fixed-rate loans, variable-rate loans, and interest-only loans. Each of these models has its own features, benefits, and risks. For example, fixed-rate loans offer the security of constant rates over a specified period, while variable-rate loans typically have lower initial interest rates but come with the risk of interest rate fluctuations. It is important to understand the specifics of each type of loan and how they affect your monthly payments and long-term interest burden.
Interest rates and their effects
Understanding the different types of mortgages and their terms is crucial. There are various mortgage models, such as fixed-rate mortgages, variable-rate mortgages, and interest-only mortgages. Each of these models has its own features, benefits, and risks. For example, fixed-rate mortgages offer the security of consistent payments over a specified period, while variable-rate mortgages typically have lower initial interest rates but carry the risk of interest rate fluctuations. It is important that you understand the specifics of each type of loan and how they impact your monthly payments and long-term interest burden.
ancillary costs
When buying a property, in addition to the purchase price, there are also additional purchasing costs that can make up a significant portion of the overall financing. It is important to include these additional costs in your budget planning to obtain a realistic assessment of the total costs of your property purchase. Here are the most important additional purchasing costs:
Real estate transfer tax: Real estate transfer tax is a state levy that is incurred when buying a property. The tax rate varies depending on the state in Germany and can range between 3.5% and 6.5% of the purchase price. This amount usually has to be paid shortly after signing the purchase contract and is a significant cost factor.
Notary and land registry costs: Notary and land registry costs are incurred for the certification of the purchase contract and the entry in the land registry. These costs usually amount to about 1.5% to 2% of the purchase price. They cover the fees for the notarial processing of the purchase contract and the registration of the change of ownership in the land registry.
Brokerage fees: If the property purchase is handled through a broker, brokerage fees usually apply. The amount of the commission varies regionally and depends on individual agreements. Common rates are 3% to 7% of the purchase price, including value added tax. Since December 2020, the principle of the person who commissions the broker also bears the broker's commission applies in Germany.
These costs should definitely be taken into account in budget planning to ensure comprehensive and realistic financial planning for the property purchase.
Although real estate financing encompasses many complex aspects, Vier Wände' user-friendly tools provide a clear and comprehensive overview that has allowed me to conveniently grasp all important financing details from my couch.
Lukas M.
In addition, it is important to include the ongoing additional costs in your real estate financing. These costs include not only the monthly mortgage payments, but also taxes, insurance, maintenance costs, and possible homeowner association payments for condominiums. Taxes and insurance can vary depending on the location and value of the property. Maintenance costs should also be included in the financial planning, as regular maintenance and possible repairs represent additional expenses. It is advisable to plan for a buffer for unforeseen expenses in your budget to ensure that you are financially secure even in the event of unexpected events.
Summary
The question "How much real estate can I afford?" requires careful consideration and planning. With the right tools and information, you can make an informed decision that secures your financial future. At Vier Wände, we strive to provide you with the necessary resources, tools, and guidance to accompany you through this important process. Start planning today and confidently and informedly walk the path to your dream home.