Products and features may vary by region.
Buying property is a big financial commitment. Here’s what you should consider before you take the plunge.
6 min read
Dreaming of buying your first home? How exciting—and nerve-wracking—all at the same time. Getting on the property ladder can be one of the most important events of your life, and easily one of the most expensive. But armed with the right information to help you understand the real costs of buying a house, you can anticipate common pitfalls and shop for the best deal for your property.
This practical guide to buying a house will help you avoid typical real-estate blunders and budget clearly for all the costs involved in homeownership.
The best thing you can do while preparing to buy your first home is to research and understand the entire process. Buying a home comes with a lot of expenses and tricky decisions—it’s more than just the deposit and monthly mortgage payments. Other expenses associated with buying your first property include taxes, insurance, and notary expenses, and you need to take all these things into account when budgeting. But while it might seem like a daunting project, it’s perfectly manageable with a little of financial planning and discipline.
So what steps should you take before you engage yourself in the buying process?
DO
DON’T
A deposit or down payment will most likely be the heftiest upfront cost when it comes to buying a house. While mortgage policies vary across Europe, the required down payment tends to be in the range of 15–20% of the property value. Depending on your chosen dream home, it may be the most considerable expense attached to a home purchase.
Other upfront costs may include broker or agency fees and notary expenses. In most European countries, the notary fees are tied to the value of the chosen property—the more expensive the house, the higher the fee.
Here’s a look at the cost breakdown country by country.
France: In France, most lenders will agree to lend 40% to 80% of the value of your chosen property. The offer will be determined by a couple of factors—namely, your monthly income and the duration of the mortgage. Your nationality and country of residence might also play a role in the final decision. The agency fees are often included in the advertised cost of the property, meaning the mortgage will cover those, too. And notary fees are generally around 8% of the property purchase price and cannot be covered by the mortgage.
Italy: If you’re planning to purchase a property in Italy, you’ll need quite a bit of cash in the bank. In most cases, you’re required to pay a 5% deposit on your purchase offer and another 20% when signing the sales agreement. But that’s not all—the agent fees and non-resident registration tax make up another 20% of the purchase price in transaction costs. The notary expenses are also borne by the buyer and can cost between €1500 and €3000, depending on the price of the house.
Spain: In Spain, lenders will generally let you borrow up to 80% of the appraised value of the property. That means, you as the buyer are responsible for the 20% down payment, plus additional upfront costs. The agent commission will often be as high as 10% of the sale, and the Spanish notary costs can range from 0.1% of the property price to 0.4% for cheaper properties (under €100,000). A good rule of thumb is to have at least 35% of the estimated cost.
Germany: German residents can generally borrow up to 80% of the assessed property value, but non-residents usually get the short end of the stick. They have to put up 40–45% of the property value as down payment. Other fees associated with purchasing a property in Germany amount to roughly 14% of the purchase price: the agent’s fee will be 3–6% of the price, the notary’s services will cost 1–2% of the price, and the property purchase tax will come in at 3,5%–5% of the purchase price.
As a homeowner, you’ll have to shoulder the responsibility and cover all property-related costs, like house repairs, insurance, and property taxes. How much should you be putting aside?
The property tax cost will range significantly depending on the country, location, size and category of the property you purchase. For instance, in Italy the property tax is usually between 0.2% and 0.76% of the total declared value of the property. In contrast, Spanish homeowners pay in the range of 0.4% and 1.1%, depending on the region they’re in.
When it comes to budgeting for home repairs, there’s the trusted one percent rule. According to this rule, you should aim to set aside at least 1% of your home’s assessed value every year for unexpected home maintenance expenses. For a €200,000 property, this works out to €2000 per year or €167 per month.
Ultimately, the cost of homeownership tends to be higher than the overall cost of renting due to many extra expenses, such as property tax, repairs and maintenance, pest control, homeowner’s insurance, and others. However, owning a house brings a lot of intangible benefits, including the pride of ownership and a sense of stability. Despite the ongoing debate, many people choose to buy over renting. And once you make up your mind to pursue this dream, the next step is to set up your budget and start saving!
Becoming a homeowner will be less daunting when you take charge of your budget. With N26, you’re always just a tap away from your mobile bank account. Thanks to push notifications and budgeting tools, you’re able to budget and monitor spending from the palm of your hand. And with our special savings sub-accounts called Spaces, putting money aside is a breeze. Create a separate savings goal and shuffle money to your New House Space in a few taps. Or set a Rule and we’ll move the funds for you automatically while you’re busy living your life.
As soon as you decide to buy a house, speak to a mortgage advisor to understand your borrowing capacity and the factors that will influence the lender's offer. Once you know how much you can borrow and the monthly cost of the mortgage, you can review your budget and start looking for the right property.
You’ll probably want to find out why the seller is leaving and whether they carried out any major renovations since the purchase of the property. Another important thing that could help you negotiate on the price is the market appeal. Ask how long the house has been on the market and how much similar homes have sold for in the neighborhood.
The primary purpose of homeownership is to provide a sense of stability for you and your family.. However, it’s important to be aware of what is happening in the housing market. By tracking changes in property prices in your ideal location, you can get an idea of whether they are gaining value over time. Remember: just because prices have risen previously doesn’t mean they are guaranteed to do so in the future.
You shouldn’t consider your house as an investment. When adjusted for inflation, very few homes appreciate more than 1% in value. On top of that, the costs associated with owning a house are too high for a house to be considered a good investment.
A good target deposit for buying a house is 25% of the property price. Most banks are happy to lend 75% to first time buyers, and this may also help you qualify for better interest rates as you’re showing the bank you’re able to manage your finances well. Some banks will accept 5% deposits, but please remember that your monthly payments will be significantly higher so you’ll need to put more aside every month.
By N26
Love your bank
What to include in your family budget
5 min read
5 smart budgeting tips for first-time savers
Budgeting doesn’t need to be stressful or confusing. These simple budgeting tips show you how you can start saving today.
The 50/30/20 rule: how to budget your money more efficiently
The 50/30/20 budget is beautiful in its simplicity. It can help you divide your income into categories that make saving easy.
How to budget for household expenses
Developing a household budget takes some work, but it’s always a good idea to dive into your spending habits to see where you could save some cash. Read our tips on budgeting for household expenses.