4

Short version. We are currently saving around 1.5k a month. We have 3k in savings. We have around 80k in debt. We earn 55k a year.

The monthly payments on a mortgage for a 180k house are significantly lower than our rent (1025 compared to 550). Does it make sense to acquire more debt, but lower our monthly living costs and acquire assets at the same time?

We're expecting to have 10k in savings and the car paid off a year from now. According to the bank that should be enough to get the loan at that point.


Long version

My colleagues keep talking about how renting is a waste of money and I should buy a house. I wonder if that makes sense for me.

My partner and I are starters. We started working a year ago with no savings. We started renting a house a few months back and bought furniture for it. We currently have about 2k in savings.

I bought a car worth 10k. We're planning to pay that off fully before buying a house.

I also have 70k in student debts on 0.01% interest. I have 6 years left till I need to start paying these back. There is no penalty for paying off early. I can choose if I want to pay this back over 15 years or 35 years.

I earn 33k a year. My partner earns 22k a year.

Our rent is 1025 a month. Due to the height of our wages, we are unable to rent a house under 710 a month, but due to various reasons, the realistic price range is more around 850+.

Clarification about rent: In Netherlands, rental houses are regulated. Many houses are "social housing", where rent is regulated and is based on scoring. If a house is over the maximum score, its rent must be over 710. Housing organizations have to assign 90% of their houses under 710 to incomes under 41k, but we are over that. Once they are out of the regulated rent, they can demand more things, including a minimum income. For that reason, houses in the 710-800 range are very popular and usually given to people with very high incomes. Our current house is too large for just the two of us (we don't want kids).

We have been looking at houses in the 160-180k range, comparable to the one we are renting now for 1025. We would pay around 550 a month for that, after taxes, 630 before, 30 years at 1.8% interest. I do realize that I would pay for maintenance on the house too. Other costs would stay more or less the same, or may be lower as we want to move to a smaller house.

2

Since it will reduce your cost of living, it is a logical choice.

Personally I would prefer to have an emergency fund, repay the car loan and collect a fund for paying real estate transfer tax (2% of house value), insurance and other costs for moving (the mortgage is limited to 100% of house value) before buying the house.

Some other things might be relevant:

In December 2020 your student loan will get a new interest calculation.

1,8% means your mortgage gets a new interest after 10 years. (The 3 big banks don't have the best interest rates).

Do both of you expect to keep working? Consider the influence if not.

The government may possibly lower HRA.

According to a calculation tool the bank may give mortgage for house over 240k

(https://www.berekenhet.nl/hypotheek/maximale-hypotheek-berekenen.html)

-1

Short version: You are in no shape to buy a home. For one you really need to check the accuracy of your numbers.

The numbers you present in the rent vs buy option make it very tempting, but the massive size of your student loans in relationship to your income should give you pause. 80K in student loans for a 55k household income? Yikes. More on this later.

Your numbers are off however. If you borrow 170K for 30 years at this writing, you are looking at a rate of at least 4.5%. This would work out $871/month. This of course does not include taxes, insurance, or PMI. Your payment with these factors would be very close to what you are paying in rent. Are you sure that your student loan interest rate is .01%? That is unheard of, even 1% is unheard of.

Your household income is pretty low right now. What are the hopes that it will increase? Can you guys double or triple your income in the next 3-5 years. I hope so for such an expensive education. If you can drastically increase your income you would be best served by waiting on buying a home. This way you can buy something more inline with your income.

If there are not large pay raises on the horizon, you might want to consider different career fields. Then you can be established in those fields, and then make a housing decision.

Now the numbers you present make it very attractive to not pay off the student loans early, it is such a low interest rate. If you choose to keep them instead of paying them off I would want a significant amount of money in the bank, that will not be used as a down payment, to mitigate their size. Like 80% of the balance or so.

Ignoring the inaccuracy in your numbers let's say you had the following:

  • 15K in a savings account earmarked as an emergency fund
  • 55K in a savings account earmarked as a "pay off the SL fund"
  • 70K in student loans at .01%
  • The car paid off.
  • And at least another 10K for a down payment,
  • Your current income of 55k

Then you might be in good shape to buy the house. However, as is, buying a home is very likely to lead to a foreclosure.

  • 7
    Solid answer regarding the downpayment in any case, but did you realize the question is tagged Netherlands? Just wondering, because you assume $ for the unspecified currency in the question (which is likely €). So I guess your answer may change when we are talking about 55k € net income in a high tax country with universal health-care and a good pension system ... – s1lv3r Sep 12 '18 at 11:30
  • 2
    @NathanL it’s been in the question from the beginning – Belle-Sophie Sep 12 '18 at 15:34
  • 2
    In the Netherlands you have HRA which let you reduce the amount of income tax you pay based on Mortgage interest you pay. So in Belle-Sophie case she will pay 71 euro less taxes each month. – Aldwoni Sep 13 '18 at 6:54
  • 1
    @GendoIkari belastingdienst.nl/wps/wcm/connect/bldcontenten/belastingdienst/… explains it better than I can – Belle-Sophie Sep 13 '18 at 7:17
  • 1
    I'm wondering how to realisticly double/triple it. I'm already earning way over average. I'm getting 1-2k raises a year. And the debt... well... I wasn't supposed to drop out of college, but I'm a college dropout, that's why I have to pay back my education to the government. It's not like it's not manageble. I have to pay back 200 a month or something for 15 years or 100ish for 35 years. – Belle-Sophie Sep 14 '18 at 10:31
-2

If your math is right, you should buy as many houses as you can get, paying 550€, asking for 850€ rent and keeping 300€ minus maintenance (a rule of thumb in Germany for maintaining cost is 1€ per 1m² each month). Even when some people couldn't pay their rent (subtract ~1% from the paid rent in median for it) you should earn money while getting the house paid off.

I believe you overlooked something because this would be a very easy way to get rich. Sadly I am not allowed to ask you out with my low reputation -to get a hint, what you forgot in your calculation (you answered on my deleted questions that your cost you pay on top of the mortgage are roughly the same then the cost who are added for your rent).

  • 2
    In many countries "buy to let" is indeed seen as a way to get rich. There are various barriers to entry like availability of finance that restricts its availability to everyone. – Ganesh Sittampalam Sep 12 '18 at 12:22
  • I am currently renting a very nice, large, expensive house, much larger than I need. I want to buy something smaller, cheaper as I cannot rent something smaller/cheaper due to my high income. – Belle-Sophie Sep 12 '18 at 12:40
  • @ganesh Sittapalam: The thread opener could get is considering it buying it from credit only, so it is easy to achive and i would consider with this buissnesplan you are even credit worthy. But if it is true, many people would do it and the prices for the houses would raise a lot. It is uncommon, that you gain money while paying a house of which is completly paid by the bank. In country where this might work, you will not get the credit, without other securities since this buissness model will have mayor insecurietes through an instable enviroment (netherland is stable). High profit high risk – chris Sep 12 '18 at 13:07
  • It's not that easy. If you could get enough credit to buy multiple houses, you're not allowed to rent out a house with a consumer mortgage on (except for a few exceptions). You'd need a business mortgage, which are more expensive. – Belle-Sophie Sep 12 '18 at 14:16
  • If you can not rent it out, does it makes sense to buy for you? You a young and in the beginning of your career, i expect you like to have a (much) bigger house soon. About the Credit, even when your numbers are for a 30year downpayment, they are extremly good which means low risk die buissness -> good credit condition. If it is entirely paid by the bank, i would still consider it a good deal when you pay a bit more then you get while you pay it back to the bank (25 years) in a steady market. Real estate market ist good explored with few loopholes. Are there big private subventions? – chris Sep 12 '18 at 15:09

Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Not the answer you're looking for? Browse other questions tagged or ask your own question.