If you want to finance a property, you usually need equity capital. How much should it be? What all counts as equity? We give tips on how to build up equity capital for real estate purchases.
The decision has been made: You want to buy a house or an apartment. Then, in the next step, you need to determine how expensive the project may actually become. You can easily repay a loan in the following amounts? Your savings bank advisor will help you answer this question.
This is part of the equity:
- Savings in accounts
- Cash assets
- Building society savings (your own contribution, not the loan amount)
- Life insurance
- Shares, investment funds, securities
- Real estate
- A building plot that has already been paid for
Get a precise overview of your finances. Add everything up to determine the available equity capital.
Tip: Don't use all of your equity and don't forget incidental expenses! If possible, keep a reserve for unforeseen expenses such as repairs.
Our recommendation: At least 20 to 30 % of the total costs for the purchase of your property should be covered by your own capital. Better even more. Because the higher your share of equity capital is, the less loan you have to take out for the financing. And the less it costs to finance.
The reason for this is quite simple: every lender integrates its risk into the conditions. A high proportion of equity means more security for him and reduces the risk of payment defaults. As a borrower, you thus benefit from lower interest rates.
Four tips for building up equity for buying a house
The current high real estate prices have a significant consequence for all those who want to acquire property: For a solid financing they need more equity capital.
The Achilles' heel of many construction loans are the ancillary costs. Real estate buyers should bring along about ten percent of the purchase sum in any case.
How much additional equity is needed depends on your income situation and is best clarified in a personal conversation with an advisor.
Four tips to help you build up as much equity as possible for buying real estate.
1. Building savings with "Wohn-Riester
With Wohn-Riester, you use the state subsidy for old-age provision to buy or build your own home. Throughout the entire term, your savings amounts and the state allowances flow into a building savings contract.
Building savings has a special advantage: it is flexible. Gifts of money or a bonus from your employer can be paid into the building savings contract as special payments at any time. If financial circumstances improve, the monthly installment can be increased without any problems.
Thanks to Wohn-Riester, your home savings contract is ready for allocation sooner. And thanks to the subsidies, you will have repaid your loan more quickly than with an unsubsidized building loan.
Wohn-Riester leads to faster repayment of loans and helps to save equity capital.
2. Critically examine private pension provision
Your own four walls often also represent a retirement provision, from which you already have something today. For this reason, it sometimes helps to rethink one's retirement plans.
If you already pay 400 euros into a private pension insurance, you may not be able to save another 400 euros for a real estate acquisition. For this reason, you should carefully consider which form of investment is best suited to you for old-age provision.
3. Gift or early inheritance
Parents or close relatives often use real estate financing to pass on part of their inheritance already during their lifetime.
Such gifts are tax-free up to certain limits. Thus, an allowance of 400.000 euros for each child.
Another advantage of a gift is that the donee can claim the allowances again every ten years; in the case of inheritance, this is naturally only possible once.
4. Save interest by rescheduling
Cars, furniture, technology: For many purchases, there's no getting around taking out a loan. However, many underestimate how much interest they will have to pay over the course of the installment payments.
Often these loans run for five, six or even ten years. Therefore, there are good reasons to compare old conditions with new interest offers from time to time – in order to save costs.
It is also often a good idea to bundle several old loans into a new one.