How to increase income number in mortgage affordability calculation?

Good afternoon everyone! Hope some Guru of Swiss real estate industry can help me with a question.

Little back ground and goal check:

I am Swiss guy, married, soon to turn 27. We are expecting a baby with my wife, and I love the idea of baby being born and raised in the owned apartment instead of rented one. Also having interest rates lower than ever before is tempting.

We currently live in VD Gland, and it seems to be absolutely perfect place for us where we want to stay for long. We currently rent a 3.5 rooms 80m2 apartment in a new and very nice building for 2450 CHF including charges and underground parking, buying anything smaller does not make sense in my vision. Our dream property would be 3.5 or 4.5 rooms in or very near Gland which brings us to the average value of about 1M including purchasing fees.

Current Net Worth is 222’ 286 CHF According to YNAB (thanks to this forum I use it on daily basis)
2nd Pillar around 8k (apparently I can not withdraw it, if it is under 20k, thats what Allianz told me)
3rd Pillar 11k with Viac (Again all thanks to you =)
The rest is Cash and IB
My Gross income is around 140k out of which 90k is fixed and 50k is a bonus (I am a sales agent)
My Wife does not work nor has any Pillar savings, and would probably return to the employment market only in 2-3 years due to the baby.

NOW to the question (Urgh its getting long) :

I have visited Migros Bank last week, and asked them to do an analysis in my financial situation and what Mortgage sum I can hope to get. I understand that interest rate can be different a bit from Bank to Bank but the base calculation would be the same in all banks.

They have given me a figure of only 102 000 net income, I guess due to leasing on my car (480x12=5760), unemployed wife, and lower fixed base salary, i guess that in the few month baby costs would add up to the costs.

If I pledge all my NW (lets assume 200k) then they would give me 590k Mortgage which total to 790k CHF property value. In order to afford a 1M property I would need to save up for 370k downpayment which will take me approximately 3 years, this is definitely longer than my plans and also I would not be comfortable to fix so much cash in real estate, when it can be invested in IB.

The other solution I see is to wait until my wife can start working and pledge both of our salaries for the mortgage, but this will be possible only in 2-3 years, so the time span is kind of the same.

I would definitely get rid of my leasing in the nearest future.

Are there any other concrete ways to increase the net income in the eyes of the Swiss banks in oder to hope for a higher mortgage? (except of working harder at my current job )))

And reality check: should I even think of buying a real estate at this stage in life, or it would be wrong decision in your truthful opinions.

Sorry for making it very long, and thank you for being so patient with my essay =))

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I suggest you meet several banks. CS or UBS are reputed to “play with figures” for mortgages. Note that banks take pregnancy/kids into account
Or renegotiate your employment contract with a higher fixed income.

Should you not succeed for now, I understand your needs to have your own nest for your family and this was also our thought process when we bought our 1st flat: wedding → mortgage → kid (French mentality). It turned out to be a great investment so far (understand: pure luck) but keep in mind that unless you fully amortize, the property belongs mostly to the bank.
Having seen many friends (not kidding) putting themselves in shitty situations, I suggest to keep sufficient emergency fund to cover an unexpected life-event

That’s indeed a legal requirement, aiming at reducing administrative costs to pension funds. Given your figures, reaching 20K 2nd pillar would probably take around 2 years, so it wouldn’t change the time horizon. Buying back would have the money stuck for 3 years too so that wouldn’t move the needle either. You could negociate with your employer to see if they’d be willing to set up a plan allowing you to contribute more, making that money available sooner if that makes a significant enough difference.

Even if you get a mortgage for 80% of the property value, you’ll have to amortize it to 66% within 15 years, so that would put the final amount of cash you’d have to put into the house at roughly the 370k downpayment value you are facing now. It does make a difference because you could be investing part of it during those 15 years but in the end, that’s the amount of cash that will need to be tied up in such a house.

I know that’s not the answer you’re searching for, but switching job? Probably not practical, but if you can get a higher (base) pay, that may solve your problem. Not saying you’re not doing good in the least: you are doing awesome for your age, congrats!

It’s easy for me to say since I have no skin in the game but I’d consider waiting a few years to get the financial situation required to buy that house a life experience and an investment in myself, and my family, since building that patience and staying focused on the goal would probably help myself become a better person (there again, not saying you can’t be already great now, just that you can become greater, and that waiting is a way that can lead there for some people. It has and does for me.).

That’d give you a more steady financial situation to support your family: the mortgage requirements are mainly there to protect ourselves from not being able to pay the mortgage. Rates can go up (though you may mitigate that in the short term by getting a fixed rate), the value of real estate can go down (forcing you to amortize more on short notice), accidents happen (you could become disabled, or die, which would be a terrible situation for your wife and kid to be in), no job is for certain (and you may face years with no or low bonus because your employer may have to tighten their budgets during hard times) and your invested assets may go down (potentially making a bad situation worse).

If you still want to go with it, provided your family is in a good enough situation to help you, they may lend you money, or if they have spare room on their mortgage, they could use it to provide yourself with a bigger downpayment. Many people do it, most of the people I know were only able to buy their house because their family had stepped in. I wouldn’t advise it, because I think taking the time to build the downpayment builds character and because that changes the dynamics of family relationships, especially if you have siblings. Both your family and/or your wife’s family could do it.

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Interesting fact: I have also seen some banks in the past allowing a rebate as downpayment. For instance if a property gets valued at 1.4M but you can buy it for 1M because of family or friends owning the property they will “use” the 400K difference as downpayment. Not sure if this practice still works today though.

You shouldn’t. Not at this price at least. Your net wealth is hardly above 20% of the value of the property you are considering.

I know mustachians do not like to be restrained financially, but to take an unsustainable mortgage opens a door to all kind of horror scenarios including personal bankruptcy, forced sell of property, family drama. You want to avoid moving with a little child, but that is exactly what you might end up forced to do, and urgently.

I think you should rather consider moving to a bigger, cheaper (hopefully also taxwise) and greener rented place further away from the lake. Before the birth of the child.

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For comparison, when me and my wife were buying our apartment, we delivered slightly above 20% of the purchase price in cash, not touching 2/3 etc. Our NW (with 2/3 pillars) was way above 55% of the purchase price (I don’t have all numbers for my wifes’ accounts). Now the value of our 2nd and 3rd pillars only is slightly above our debt, so theoretically we can repay it any moment.

We were lucky and were able to buy an apartment at a price way below the market price, though.

100% Agree with Dr.PI.

[quote=“Dr.PI, post:5, topic:6730, full:true”]

I did something similar some years ago. The main differences was that had more cash than you (15% of the down payment), but I pledge my 2nd 3rd pillars, My wife and I both worked and we didn’t have kids at that stage.

But I gave all my cash for the down payment, to to finish the month was really hard (pile up the credit card, ask for an advance salary to HR…). In addition, as we moved to a bigger apartment we didn’t have the right furniture and we couldn’t effort it for the next few months.

Conclusion:
Adding a new member to the family is stressful (beautiful but come with their challenges)
If you add some financials issues it could end in a really bad situation.

Personally, being a father of 2 and property owner that rush to buy it. I will not recommend it, but your life your choice

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Thank you for all your input and advice ! Moving in with the child is indeed difficult challenge which I did not really think about. But still while the child is not born ( we still have about 5 month) may be its enough to finalise the relocation.

Would you advice against buying something may be in the 700k Price range somewhere further away like @Dr.PI said. Wait 3-4 years to save up for a bigger place and then move again ? Most sources suggest that we have to leave in one place for at least 6 years in order to make sense to buy something. Saving while paying for Interest + Indirect amortisation should be easier than paying the high rent. (I still remember about transaction costs 5%=)

Also as @babyjag said that banks will take in account child expenses, so may be it’s better to secure a smaller mortgage before he is born?

Switzerland is one of the best countries to be on the renting side, so except of maybe financially, you are not much disadvantaged when renting. It is important and very good for children to grow up in one place, but it does not absolutely have to be your own property.

You are 27, if you buy an apartment now and in 3,5 or 10 years you or your wife find a great job opportunity too far away to commute, what will you do?

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I guess it is because of the way how they calculate your bonus. I think most of the banks will take into account last 3 years and then take into account 50% to 80% of the average.

Since I would not be able to pledge 2nd Pillar and 3rd pillar is too small to make a big difference, I assumed that we would be free to rent out our appartment at any time we decide to move, and let the tenants pay for the mortgage. Is it not the case?

As this is a FIRE forum perhaps you can try looking at the decision from a different angle. Is your priority (a) Financial Independence as young as possible or (b) to have your kid raised in an appartment that you own?

Putting large amounts of savings into (b) is what most of society does but the opportunity cost is not being able to invest in shares and other income generating assets and is likely to delay the date when you achieve (a). Especially considering current property prices, rents and incomes in most of Switzerland and especially Lac Genève area.

A Mustachian aoproach might would be to figure out what income you need to be financially independent (e.g. 100k CHF per year), then multiply by 100/3 to get a safe FIRE net wealth. Then you can model (a) and (b) above with assumptions and see how long it might take to reach FI in both scenarios. Whatever you decide, this way you understand the likely consequences of your actions.

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Yes but the bank might request you to amortize up to 35% of the value (more if real estate value decreases, or less if value increases in the meantime)

If owning your main residence is really what you want, make sure you buy at a reasonable m2 price (ask several banks to give you their estimate) and you have enough cash on the side

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Don’t.

I don’t know because we are planning to live in our apartment ourselves for at least next 20 years. But you should know. There are many threads touching various issues around it.

Anyway, I will ask you a question in the same direction as others: what are the goals, besides emotional ones, for you to buy an apartment?
To invest in real estate? Too much concentration, too much leverage.
Save on rent? Not sure you will. You have a much broader choice if you are renting comparing with buying. And don’t forget opportunity costs of not been invested (6-7 % p.a. long term vs. how much saving on rent)?

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You could also play with the moneyland calculator to see the opportunity cost: Home Rent or Buy Calculator - moneyland.ch

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Yes and no… if you tell the bank they will say no because they do another risk calculation because the afforadability is then a mix of income and rental income. So there’s a chance that you would need to pay down the apartment further. And yes because I don’t think banks actively track who’s living in a property they gave out a mortgage for.

They probably do not actively track, but in the mortage contract it is clear if it is for a primary residence only.

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Thank you very much for your advice and input!!! After some thoughts and processing from a different perspective, we have decided with my wife to stay diversified and buy real estate only if the downpayment would add up to only 60% of our Net worth. Current apartment we rent is ideal for the family with 1 child, if, no, when the second baby will be on the way, then will return to the evaluation of real estate purchase. Love the blog - Love the community

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I confirm, still in practise but sometimes with catches. Totally worth it though since I could put zero down payment.

Totally late and easy to say since the decision has been taken but, it’s the right one in my opinion. At 27, your thought process is the right one and while you never know the future, the time you have now can also allow you to learn more on the ins and outs of mortgages and housing…will save you more money in the future!

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