How much house you can afford: the maths behind the calculator.

The formula behind every budget calculator

Whether bank, portal or broker: every budget calculator converts a monthly instalment into a loan amount, and they all use the same mathematics. The maximum loan is the annual instalment total, divided by the sum of the interest rate and the initial repayment rate, times one hundred. Once you have understood the formula, you can verify any calculator result and any advertising table. Expressed as a factor:

The table shows two things straight away. First, the interest rate is not the only lever: the initial repayment rate affects the possible amount just as strongly. Second, lowering the repayment rate to borrow more extends the term considerably and shifts the risk into the years after the fixed-interest period. For exact figures instead of estimates, use our financing calculator.

The 35 per cent rule: what a sustainable instalment is

The common rule of thumb: the mortgage instalment should not exceed 35 per cent of monthly net household income. Some lenders allow up to 40 per cent, while the average across actual financings is closer to a quarter of income. The rule is a market convention, not a law, and it does not replace your own calculation: what counts is what is left after all real expenses.

Three items are regularly underestimated. Existing obligations such as car leasing or consumer loans reduce the sustainable instalment in full. The running costs of your own property come on top of the instalment, from heating and electricity to maintenance reserves, and in our experience they clearly exceed the service charges of a rented flat. And the instalment has to work not only today but also after the fixed-interest period ends, when refinancing happens at whatever rates then apply. Anyone calculating 35 per cent with today's rate alone is talking themselves into the house.

From income to purchase price: the calculation in four steps

The most common mix-up in the budget question: loan amount and purchase price are not the same thing. Equity and purchase costs sit between them. The sequence:

1. Step 1

   Set the instalment you can carry

   Household net income times at most 35 per cent, minus existing loan instalments. If you prefer to be conservative, calculate with 30 per cent and keep a buffer for the running costs of the property and for higher rates later on.

2. Step 2

   Convert the instalment into a loan amount

   Annual instalments divided by the sum of the interest rate and the initial repayment rate, times one hundred. That is the formula inside every budget calculator. The lower the combined rate, the larger the loan at the same instalment, and the longer it runs.

3. Step 3

   Add your equity

   Loan plus available equity gives the total you can spend on price and purchase costs. An emergency reserve of two to three months' salary stays untouched.

4. Step 4

   Subtract the purchase costs

   Real estate transfer tax, notary, land registry and, where applicable, the estate agent's commission usually add up to roughly ten to fifteen per cent of the price, depending on the federal state. Only what remains after that is your realistic price range.

There are separate guides for the two levers at the start and end of this calculation: how much equity makes sense and why more of it lowers the rate, and which items belong to the purchase costs. In Hesse, with its six per cent real estate transfer tax, you calculate at the upper end of the range.

Why banks assess the same person differently

The budget calculator tells you what is mathematically sustainable. Whether a bank grants the loan is decided by its own household budget assessment. Banks are legally required to do this: before concluding a residential mortgage they must thoroughly assess your creditworthiness (Section 505a of the German Civil Code). In this assessment, your verifiable income is set against living-cost allowances, housing costs and all ongoing obligations.

Decisive for your budget: this assessment is not standardised. From our brokerage practice, banks differ above all in three places. The level of living-cost allowances per household size. The treatment of variable income components, such as bonuses, shift allowances, commissions or parental benefit, which one bank counts in full, the next in part and the third not at all. And the handling of the self-employed, where several annual financial statements are usually averaged. Added to this is the collateral side: the bank does not finance the purchase price but values the property with its own mortgage lending value, and the gap between loan and that value co-determines the interest rate.

The consequence: the same application can fail at one bank and go through at good conditions at the next. That is no reason to try bank after bank, because uncoordinated credit applications can hurt your Schufa score. The better route is a condition enquiry through a broker who knows the banks' criteria and places the application where it fits the profile. What to do after a rejection is covered in Financing declined.

More leeway without more risk

If your price range does not match the market, there are sound levers and risky ones. Sound: reduce the purchase costs, for instance by buying without an agent or by listing movable items separately in the contract. Increase equity deliberately, including through own labour or subsidised development loans, whose availability and conditions can change. And prepare your documents completely, because a clean application is assessed better than a patchy one.

Risky is the opposite: cutting the repayment rate to the minimum to stretch the formula, pushing the instalment to the 40 per cent line or putting the emergency reserve into the purchase price. All of that enlarges today's house and shrinks tomorrow's safety. Our honest view: if the range is only sufficient with such means, the problem is not the calculation but the price.

What to take away from this guide

• The instalment usually carries up to 35 per cent of net household income, counting existing loans and the running costs of the property.
• Maximum loan = annual instalments divided by (interest + initial repayment) times one hundred. At a combined 5.5 per cent, about 220 times the monthly instalment.
• Price range = loan plus equity minus purchase costs of roughly ten to fifteen per cent.
• Household budget assessments are not standardised: allowances and income treatment differ, so the same person is offered different loan amounts.
• Leeway comes from purchase costs, equity and clean documents, not from minimal repayment and maxed-out ratios.

ME Finance promises no commitments and no conditions. We calculate with you what holds, and place your application with the banks whose criteria match your profile. We take your key data through the no-obligation enquiry.