Real estate financing

How much equity is necessary for real estate financing?

The first question you should ask yourself before buying a property is: How much equity should and can I bring with me? This is very individual and also depends on how high interest rates currently are. The more capital you take out, the higher the interest rates often are.

equity capital is also considered collateral by banks. This collateral can either be brought in as equity or given in the form of a tangible asset, such as a property that has already been paid off, building society savings contracts or credit balances from a life insurance policy.

the following assets are considered equity

• Cash / savings accounts: This is short-term capital that can be used as direct equity to reduce borrowed capital.

• already paid-off real estate / landif you already own paid-off real estate, which you may even rent out, this will be considered as additional collateral for your financing. Your bank advisor will discuss with you whether it makes sense to sell this property or to use the rental income for the financing. A plot of land that you have already paid for and on which you want to build will also have a positive effect on your financing.

• Personal loanyou may receive financial support from your family for your financing. This may be in the form of a personal loan or an inheritance. You should also declare this when financing.

• Subsidies: If you build a new house with energy efficiency in mind, you will most likely receive so-called kfw subsidies. These are actually to be described as borrowed capital, but under certain circumstances they can also be credited to you as equity capital if these institutions are not recorded in the land register or similar.

It is often recommended that you have at least 20% equity capital. The lower your loan instalment at the bank, the lower the interest you will have to pay on your loan. In addition, you will have more financial leeway in the future for reserves or renovation measures.

How much debt capital can you take out for real estate financing?

Before you start looking for a property, we recommend that you find out approximately how much borrowed capital you can and want to take out.

The following assets are considered borrowed capital:

• repayment loans: The classic debt capital in a property financing is the amortising loan. The amortising loan is the total sum of the interest and the repayment sum. With the repayment you service the costs of the property yourself, while with the interest rate you only pay the interest on the loan from the bank.

• KfW fundingin addition to bank financing, KfW also offers loans at attractive interest rates. However, these can only ever be used as partial and not full financing. The bank is liable for the loan itself, which is why this financing is often part of the repayment loan. Depending on whether you are planning energy-saving conversion or construction measures, the amount of possible financing via KfW varies

Calculate the maximum loan instalment!

Would you like to know the maximum amount you can borrow for your real estate financing? Then use this simple formula: Add up all the income you bring in monthly as a person or family and subtract your fixed household costs. The rest that you have left is the budget surplus that you can use as the maximum possible total loan instalment.

Would you like to learn more about real estate financing? Our guidebook will give you more information on the following topics:

• home financing

• Housing finance

• Real estate as an investment

The basics of financing real estate

You want to buy a house and are thinking about the location of your dream property? What size it should be and how your ideal property should be cut? Before you delve into the details, it is worth clarifying your financial scope. The versatile options available to you with property financing should be considered carefully. What exactly is home financing and what are the prospects of the individual models? And what should you consider with a view to the next 10 to 20 years? Find out more here.

Financing options

It is best to enquire about the current offers from various loan providers and get a good overview of property financing before you decide on a model. For example, if you choose a classic annuity loan for real estate financing, you pay off a certain sum per year. This sum consists of the accruing interest - the interest burden - and the actual amortisation. The advantage of this is that the share of the interest burden decreases from year to year. For you, this means that the financing of your loan becomes more efficient because it is paid off each year with a higher repayment share.

If you opt for a full amortisation loan instead, the amount of the amortisation is based on the term until full repayment. Despite the current low-interest phase, many banks often offer further attractive reductions, the shorter the period and the higher the repayment. However, even if you opt for a higher repayment and a shorter term with this type of financing, the monthly repayment may be lower than with a conventional real estate financing via annuity loan. It is therefore important to compare the different offers carefully. A longer-term fixed interest rate can also secure you the current low interest rate.

Consider quality of life before financing

If you know what your house may cost, then you can take your time to look for a suitable residence in a suitable location. You should also keep the future firmly in mind, because not every house can cover all your needs for a long time. What are your immediate needs? What must your home be able to offer you in 10 or 20 years? If you have children, they need their own place of retreat - preferably a room of their own. If you expect visitors more often, then a guest room and a guest toilet with a shower bath can be useful. In addition, you should already make sure that the house remains functional in old age. Barrier-free and wide entrances as well as a lift in an apartment building can then ensure pleasant living comfort.

These aspects should be considered before making a purchase decision and financing the property, because if you want to carry out renovation measures, you should also factor these into your property financing. This will result in a slight increase in the monthly repayment, but will ensure that you have the necessary budget for the renovation costs without incurring high additional monthly charges. If the amount to be deducted from the total financing would be too high, you can also proceed in exactly the opposite way. In this case, the amount to be paid off for the real estate financing could be set as low as possible in order to use the remaining capital for your renovation or to secure your accustomed standard of living.