For most people it is one of the most important steps in their lives: the purchase of their own home. Only very few people, however, are likely to be able to make a purchase with equity capital alone. A house financing makes this wish tangible. Since borrowers usually commit themselves for a long period of time, this decision needs to be well considered. We list the 12 most important questions you should ask yourself in the run-up to a loan and answer them for you.
1. How to finance a house?
The most common and most frequently selected variant of the house financing is the annuity loan. Many borrowers appreciate the good planning ability, since the installments remain the same over the entire duration of the fixed interest period. A change nevertheless takes place – within the installments, which are made up of the repayment and interest. As the term progresses, the repayment portion increases while the interest rate decreases. The reason: You pay the interest only on the remaining debt and this decreases continuously with each installment.
A special form of real estate financing is the full amortization loan. It is geared in such a way that you have repaid your home financing in full by the end of the fixed-interest period thanks to higher installments. This is the difference from the annuity loan, for which follow-up financing is required. With a bullet loan, you only pay the interest during the term of the loan. At the end, you repay the loan amount in one lump sum. Due to the tax advantages, this principle is primarily recommended for homebuyers who plan to rent out their property. The question of how to finance a house depends on your personal conditions.
2. What does a house financing cost?
If you need a loan to purchase your own home or to finance a house construction, the costs can never be predicted in advance across the board. This depends on the specific conditions that the bank grants you. This in turn is influenced by the following criteria:
- Required loan amount
- Equity share
- general creditworthiness of the borrower
- Duration of the fixed interest rate
- Amount of repayment
- Current interest rate level
The bank assesses your creditworthiness, taking into account, among other things, your profession, income and any SCHUFA entries. Long fixed-interest periods lead to a surcharge in the interest rate. Meanwhile, the higher you choose the repayment, the more favorable conditions you can expect. If you acquire an existing property, its location and condition play a role. The current market conditions with the relationship between supply and demand as well as the interest rate level also help determine the cost of your home financing. Ultimately, you will get different conditions submitted if you inquire at several banks. For this reason, a loan comparison is worthwhile in advance to keep costs as low as possible.
3. How long does a house financing run?
If you are financing the purchase of real estate or the construction of a house, you usually need quite a large sum for it. In order to repay them without too much financial constraint, quite long terms are usual. The decisive factor is also the amount of your own capital. The more money you raise yourself, the less support is required from the bank – and the faster your loan is repaid. The terms for construction financing generally extend over periods of 10 to 30 or even 35 years. In general, it is advised to have repaid the real estate loan by the time you retire.
4. Who can get a house financing?
In order to obtain a house financing, you as a borrower must meet certain requirements. Even if it is not absolutely necessary for your desired property to be located in Germany, this definitely applies to your place of residence. At the same time, you need a German bank account.
Age is also taken into account when granting loans in general and in the case of home financing in particular. The age of majority is practically self-explanatory – commitments are only possible from the age of 18. Possible in the second year of life. Some banks additionally set an upper age limit and accept older customers only in exceptional cases.
The credit institution needs to know that you will be able to service the monthly installments without any problems. This requires a regular monthly income, which is another condition for obtaining a loan. The better your financial conditions are, the more attractive conditions are in prospect, as the risk of default is considered to be lower.
5. How much equity do I need??
The question of equity capital to finance the construction of a house is quite simple to answer: the more, the better. This thesis can be conclusively justified. If you can show high reserves, the bank sees a low risk for your loan. As a consequence, it is willing to offer you more favorable interest rates. This in turn allows you to be debt-free again more quickly.
An often-quoted guideline is that you should at least cover the incidental costs of purchase with your own equity. As a rule, they are between 10 and 15 percent of the purchase price. It is even better if you can bear 20 to 30 percent of the total costs. However, it should be noted that with appropriate creditworthiness house financing is also possible completely without equity and is no longer uncommon today.
6. Can I finance a house without equity capital?
As described, some banks allow home financing without equity capital. However, some criteria must be met. A distinction is made between 2 forms. In the case of 100 percent financing, the loan is for the full value of the property. The customer pays the ancillary costs. The situation is different with 110 percent financing, which also covers these expenses.
So-called full financing is only granted by banks to customers who can demonstrate secure employment in combination with an above-average income. Also the characteristics of the real estate come on the test stand. Thus, it is important that the property is located in the most attractive location possible and in top condition. In general, you must expect significantly higher costs if you finance a house without bringing in equity capital.
7. At what salary can I afford which house / which house financing?
When answering this question, however, it is necessary to point out once again a guideline value. This states that no more than 35 to 40 percent of the monthly net income should be spent on house financing. Orientation in estimating the maximum real estate price gives a budget calculator. As a rule, these tools ask for other parameters in addition to the possible rate, such as the amount of equity, the interest rate and the repayment rate, as well as the fixed interest period in years. In addition, you must specify the state in which you plan to buy or build the house, because this will determine the incidental costs in the form of land transfer tax and brokerage fee. Take into account, however, that a budget calculator provides only a rough guide, since you are partly with fictitious or. Estimates work.
8. What does the bank finance when building a house?
Home financing is a dedicated loan. This means that they may only be used for the construction or, alternatively, the renovation as well as modernization of the property. It is common for banks to ask for evidence of this – in the form of invoices, for example. You can use the loan as follows:
for the property
- Payment for the construction of the house with all its components
- Construction of a carport or garage
- Design of the exterior
9. Which additional purchase costs arise?
If you want to finance the purchase of an existing property or the construction of a house, you must be aware that there will be incidental expenses. These make up a not inconsiderable amount, but vary depending on the federal state. They can amount to up to 15 percent of the purchase price.
The land transfer tax is to be firmly planned for. Yes according to region this lies between 3.5 and 6.5 per cent. Only with notarial certification does a real estate purchase become legally effective. Notary fees – including the change in the land register – amount to between 1.5 and 2 percent of the total price of the house. Unlike the items mentioned so far, the buyer does not pay a broker's commission alone, but shares it with the previous owner. The brokerage fee is also a matter for the federal states and ranges from 5.95 to 7.14 percent of the purchase price. If you already know how much you want the property to cost, you can use an incidental purchase cost calculator, which will break down the expenses you need to consider in each amount.
10. How long should the fixed-interest period be??
When deciding on the length of the fixed interest rate for your home financing, a general rule of thumb will help you. It states that in times of high interest rates, the shortest possible term is recommended. Conversely, long fixed interest rates are worthwhile in the event of low construction interest rates. In this way, you can secure attractive conditions for the long term, even if interest rates rise again in the meantime. Although the banks charge a certain premium the longer the fixed interest rate is agreed, this often proves to be more favorable than a high market interest rate.
11. How do I benefit from subsidies in my home financing??
The best-known address for subsidies for the construction or purchase of residential property is the Kreditanstalt für Wiederaufbau (KfW). It provides low-interest loans that can serve as a supplement to your home financing. In addition, you can benefit from the option of a repayment-free initial phase. Depending on the agreed conditions, you only pay the interest in the first 1 to 5 years. Since the repayment portion is omitted during this time, the installment amount is reduced.
KfW also provides grants that do not have to be repaid – for age-appropriate conversion measures or energy-efficient refurbishment. For buyers of existing properties, KfW program 124 is particularly relevant, as it specifically supports the purchase of residential property. If you would like to finance the construction of a house, program 153 is of importance. It promotes energy efficiency in the construction of residential property. You can apply for a KfW loan through the bank you have chosen for your real estate loan. Meanwhile, an online portal has been set up for direct grants.
Good to know: In addition to the KfW's nationwide offer, regional subsidies also exist in some cases. They are generally intended for the purchase of owner-occupied housing. Often the buyer must not exceed a certain income limit in order to claim them. You can get an overview of the options available in your area from the online subsidy database of your federal state or by asking your local authority.
12. Is it worthwhile to arrange unscheduled repayments?
Unscheduled repayments are unscheduled payments that you make in addition to the monthly installments of your home financing. They reduce the remaining debt, which means you can pay off your loan more quickly overall and be debt-free again sooner. Such unscheduled repayments can be made once or periodically, depending on the contract. Some banks charge an interest surcharge for this option, while others do not.
In the meantime, many providers allow an additional 5 percent of the original loan amount to be paid each year without raising the conditions. If this is the case, it is definitely worthwhile to make use of this option. Optionally, extended unscheduled repayment rights can also be included in the conditions for your home financing, which provide for the payment of larger amounts. Once this affects the amount of your interest, careful consideration is necessary. You should only decide to make regular unscheduled repayments of the appropriate amount if you are sure that you will be able to do so. Under these circumstances, you can compensate for the higher interest rate by shortening the term of the loan and thus saving on costs.
Conclusion: Think through house financing well, compare offers
If you want to finance a house, well thought-out planning is essential. You are probably making one of the most important decisions of your life. You are committing yourself for a long time – but at least for 10 years. Only then you may cancel without having to pay any compensation to the bank. In principle, people with a smaller, regular income can also get home financing approved. This makes the various subsidy programs offered by KfW and at the regional level all the more important for them.
Full financing, on the other hand, is reserved for a smaller circle. Due to the overall higher costs and quite long terms, they are only recommended in exceptional cases anyway. In conclusion, the most important rules for successful home financing can be summarized as follows. The more equity there is, the better the conditions are. In times of low construction interest rates, long fixed interest rates make sense, and when interest rates are high, they should be as short as possible. And if the option of free unscheduled repayments is available, it should be taken advantage of. Do not decide immediately for your house bank, if you would like to finance a house, but compare first different offers. An independent credit broker can help to save several thousand euros.