Determining the gross income required to afford a home is complex, influenced by various factors like property value and location-based property transfer tax rates. For instance, buying a home valued at €300,000 necessitates a net income of at least €3,549.78, translating to a gross salary between €5,080 and €5,774, depending on tax class. As home prices increase, so do the necessary income thresholds, with a €600,000 home requiring a monthly net income of at least €7,099.53 and a gross salary around €10,605 in tax class 3.
How much gross income is required to afford a home?
For rental properties, there’s a chance they can partially pay for themselves. However, for a property intended for personal use, having a solid income is essential. The calculations provided here serve as general guidelines. Each situation is unique and starts with the transfer tax, which varies based on the location of the property. This tax can range from 3.5 percent (Bavaria) to 6.5 percent (Schleswig-Holstein, North Rhine-Westphalia, Saarland, and Brandenburg). The calculations below refer specifically to Baden-Württemberg (where the transfer tax rate is set at 5 percent). Another important factor is the percentage of net income needed for living expenses (food, car, insurance, etc.). For simplicity, we assume that no more than 40 percent of net income should go towards loan repayments, interest, and amortization. We will assume an interest rate of 4 percent per annum, which can vary depending on individual circumstances. It is also advisable to save for ancillary costs as part of your equity, as many banks require additional equity (for instance, 20 percent of the purchase price). The duration of the mortgage also plays a crucial role, and we will assume it takes 30 years to repay the mortgage.
300,000-Euro Property: Minimum Gross Income Required
It’s important to note that purchasing a property valued at 300,000 Euros incurs additional costs:
Assuming you have 10 percent of the ancillary costs saved and are financing only 300,000 Euros, at a 4 percent interest rate over 30 years, your monthly payment would be 1,419.91 Euros. It is recommended to allocate no more than 40 percent of your net income for this purpose.
This implies that the net income should be at least 3,549.78 Euros.
As a single earner in tax class 1, this equates to a gross salary of approximately 5,774 Euros per month.
In tax class 3, this translates to about 5,080 Euros gross salary per month.
400,000-Euro Property: Minimum Gross Income Required
Given that the above assumptions hold true, the following ancillary costs should be considered for a 400,000 Euro property:
Assuming you have already saved 10 percent of the ancillary costs and are financing only 400,000 Euros, the monthly rate at a 4 percent interest rate over 30 years would be 1,893.21 Euros. It is advisable not to spend more than 40 percent of your net income on this amount.
This means the net income should be at least 4,733.03 Euros.
For a single earner in tax class 1, this corresponds to a gross salary of approximately 8,074 Euros per month.
In tax class 3, this is around 6,948 Euros gross salary per month.
500,000-Euro Property: Minimum Gross Income Required
The total ancillary costs for the purchase amount to 550,350 Euros, consisting of various expenses:
Assuming you already have 10 percent of the ancillary costs saved and wish to finance only 500,000 Euros, at a 4 percent interest rate over 30 years, your monthly payment would be 2,366.51 Euros. To assess financial strain, this rate should not exceed 40 percent of your net income.
This results in a minimum net income of 5,916.28 Euros per month.
As a single earner in tax class 1, this corresponds to a gross salary of about 10,298 Euros per month.
In tax class 3, this would equate to a gross salary of 8,757.32 Euros per month.
600,000-Euro Property: Minimum Gross Income Required
The ancillary costs for purchasing the property are structured as follows:
If you have 10 percent of the ancillary costs saved and finance a total of 600,000 Euros, with a 4 percent interest rate over 30 years, the monthly payment would be 2,839.81 Euros. It is recommended to avoid allocating more than 40 percent