How much house can you afford? Here’s how you’ll find out

Finally designing the kitchen according to your own dreams or simply turning on the music without a guilty conscience until the walls shake. A home of your own can have several advantages. But can you afford a house at all? And how much should it cost? Find out the maximum amount of your mortgage. You can find out how to do it here.

Preparation: How much equity you need to bring with you

You can also finance your house without any equity capital. You can read more about this in the info box below. According to a common rule of thumb, however, you should contribute at least 20 percent of your own capital. That means: If a house costs 200,000 euros, you should contribute at least 40,000 euros of it from your savings stocking or possibly from a so-called subordinated loan. Then you would need a construction loan of 160,000 euros. In theory.

Because in addition to the purchase price there are also the so-called ancillary building costs. These are, for example, the fee for a broker or notary, the land transfer tax, fees for necessary expert opinions or the costs for the interior fittings. All in all, the ancillary costs for the construction can be quite expensive. Roughly calculated, up to 20 percent of the purchase price can be incurred. In our example, another 40,000 euros.

In this case, you would have to reckon with a total of around 80,000 euros in equity. But perhaps you can keep the additional costs considerably lower and thus save your money. For example, if you don’t buy your house through an estate agent or make concessions on the interior fittings. In any case, it is important that you consider the additional costs when calculating the construction financing and equity capital.

Rule of thumb: Your income allows for this much construction financing

Equity is important to determine how much house you can afford. But it is just as important to take a close look at the monthly mortgage burden. After all, sufficient equity capital is of no use to you if you find it difficult to pay the monthly installment.

There is a simple rule of thumb for determining the maximum loan amount for your mortgage. Take the monthly net income in your household times 110, for example 2,000 x 110 = 220,000 euros. But be careful! This rule of thumb has its pitfalls. It does not take into account your expenses.

Therefore, a more elaborate method is better. In the end you will get a more reliable value. First calculate the total monthly income in your household. Then subtract the average expenses you have. For example, for existing loans, food, mobile phone, gym and so on. Include a proportion of your income that is not necessarily incurred every month, such as insurance, holidays or Christmas presents, car repairs, new purchases, reserves and so on. The housing costs, on the other hand, i.e. the rent, you can leave out. Because with your own house you won’t have to pay them anymore.

Funding: How the state can make financing easier for you

If you are wondering how much house you can afford, you do not necessarily have to rely on your own money alone. Depending on the purchase or construction project, you can also apply for subsidies that can bring up to several tens of thousands of euros into your coffers and thus relieve you of the burden of financing the construction.

The information portal of the Federation of German Consumer Organisations’ consumer advice centre, for example, shows various subsidy offers. On the website baufoerderer.de you will find these in a subsidy search, which you can filter according to your needs, the location of the property and your project.

These include subsidies for energy-efficient construction or renovation. You can apply for subsidies for the entire house, only for the roof, the replacement of windows or also for an energy consultation and an improvement of the burglary protection.

Conclusion: What your house should cost at most

The most important factors to calculate how much your house may cost are your saved equity and the money available for monthly installments. Subsidies can be a helpful supplement, but they should not be a cornerstone of your home financing. This is because subsidies are often paid with a delay and not always in the hoped-for amount. It is also possible that you will not be approved for subsidies.

How much house you can afford, however, also depends on other personal factors. For example, you may already have saved considerably more than the necessary 20 percent of your own capital. On the other hand, there is less room for manoeuvre when it comes to monthly instalments. In such a case, you could also bring in more equity. And would therefore need less money from a loan. Less construction financing then means lower monthly installments.

Or your household income is very high, but you have little or no equity. In this case, for example, mortgage financing without equity could be an alternative.

According to your calculations, you can afford your dream house relatively easily? Great, then it is time to look for a suitable financing. However, especially if you have a tight budget for the property you want, you should not start planning the furnishing yet.

Wait for one or even several professional calculations from financial institutions. Because lenders may come to a different conclusion than you.