Buying a property: 5 bids for construction finance & credit

Have you decided to build a house, buy a condominium or an old building with a very special charm? Here you can find out the first, most important ones steps.

Real estate - property, plant and equipment with added value

The sum is impressive: according to an estimate by the official expert committees, apartments, houses and land change hands for hundreds of billions of euros every year. Some speak of a boom. The others already from a bubble. In fact, the prices in large German cities and in many medium-sized cities have increased over the past few years clear gone up. But the whole truth also includes: For a long time, real estate prices in Germany were rather cheap in international comparison. So there was some catching up to do. To speak of a Germany-wide real estate bubble therefore seems exaggerated to me.

If you want to use your property yourself, you only need to be moderately interested in the discussion about boom or bubble. In view of the extremely low interest rates that you can lash down in the long term, you currently have a very good opportunity to buy a valuable property in a good location.

Real estate is a tangible asset with added value. You can live in it, are independent of a landlord and build up a solid pension plan. I expressly do not endorse the arguments of brokers and sellers who talk about »rent-free living in the Age« rave. Rent-free may be true, but of course you have to reckon with housing costs and a modernization and repair effort that cannot be overlooked. Because along with you, your house or apartment will also “get old”. But still: With a debt-free property, you will have a solid economic pillar when you retire.

What can you do wrong with real estate financing?

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Sometimes I'm asked: "Is it still possible to do anything wrong with mortgage lending with these low interest rates?" Yes, yes! In the Internet Finding the cheapest mortgage lender and then fixing interest rates for 15 or 20 years is unfortunately not enough. The following questions must also be answered:

• How much equity should you bring in so that the financing is not "sewn on edge"?
• How high should the repayment rates be so that the property is in debt until retirement?
• What additional costs are incurred - and how can they perhaps be reduced?
• What is provisional interest, special repayments and prepayment penalty?
• What is the difference between the mortgage lending value and the lending limit?
• How is the land register structured and why does the bank insist on first-class protection?
• Would you consider a Volltilger loan?
• How do you secure a loan for follow-up financing in good time? And what should you do when things get tight financially?

You no longer need an 300 site that familiarizes you with every facet of mortgage lending. On the Internet you will find a wealth of important information with which you can individually enrich the basic knowledge conveyed in this booklet. Consider the text at hand as a kind of compass that can help you navigate to solid and individually tailored building finance.

How to determine your financing needs

Done: You have found a house or an apartment that exactly meets your expectations and those of you Family is equivalent to. The property is not exactly a bargain, but in view of the good facilities and the perfect location, the price is right for you Order. Instead of paying rent like in all the past years, you are now building up your own home. Soon you will be independent of a landlord and can enjoy life in your own four walls. First of all, however, the Financing to bring under one roof.

Only very few of our contemporaries are in the fortunate position of being able to pay for a property with their own funds alone. For the vast majority of real estate buyers, it is actually the largest investment of their lives. The average net monthly income for full-time employees in Germany is just under 2.500 euros. So if you buy a property for 300.000 euros, you would theoretically have to save your entire net salary for ten years in order to be able to purchase the property with your own funds alone. Of course, this is unrealistic, because after all, you and your family need it Money for insurance, for nutrition, for clothing, hobbies and holidays.

Let's make it short: Most property buyers and builders need outside capital. This is not a problem, and certainly not in times of very low interest rates. In addition, fierce competition among building finance providers and a number of court rulings have contributed to making the construction finance market much more consumer-friendly today than it was a few decades ago. And yet there are still numerous pitfalls that you should be aware of in order not to end up in financial difficulties.

The five commandments of home finance

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Before we go deeper into the subject, I would like to introduce my five commandments to successful building financing. I will cover the topics raised in each of them in greater detail, but I would like to draw your attention to the essentials at this point:

1. Commandment: Always calculate realistically. This applies to the assessment of your personal economic performance as well as to the actual costs of purchasing real estate. Do not underestimate the additional costs associated with the purchase and financing. You can find out what to expect in the second chapter.
2. Bid: take the time to compare the offers of the numerous mortgage lenders. Nobody forces you to conclude your loan agreement with your house bank or the nearest savings bank. You should also not blindly follow a developer’s bank recommendation. But not only compare the amount of interest, but also the general conditions. You can find out more about this in the third chapter.
3. Bid: Secure low interest rates in the long term. Loan contracts with 15 or 20 years are no longer uncommon these days. Such long-term contracts give you calculation security and reduce the risk of changes in interest rates with regard to follow-up financing. Again, please note the recommendations in the third chapter.
4. Commandment: If possible, make special repayments. Suppose you inherit or are otherwise able to enjoy an unexpected monetary blessing. Before you think about buying equity funds, gold bars or any other form of investment, reduce the amount of debt from your home loan. Make sure that the bank allows you to make special repayments free of charge. You cannot claim interest on private loans for tax purposes (the situation is different when you rent out your property). It is therefore in your interest to repay your loan as soon as possible. Your property should be in debt at the latest when you retire.
5. Commandment: Expect the worst case. It usually takes 20 or 30 years for a property to be debt-free - sometimes even longer. A lot can happen during this time. Chapter 5 tells you how to make provisions and what you can do when things get tight.

What is your equity?

In principle, you can definitely finance your property 100 percent. Some banks are willing to do this if the customers bring a corresponding credit rating, i.e. solvency. 100 percent financing can make sense, for example, if you invest your equity in shares have invested and the stock market is in a deep bear market at the time of the property purchase. Would you buy your shares then? merchandise, you would have to accept substantial price losses.

The better one Alternatives: You finance 100 percent initially, but take out two loan agreements – one with a long term (ten years or more) and one with a short term (about five years). Chances are that stock prices will have recovered by the time the short-term loan agreement expires. You then replace the small, short-term loan after five years and thus bring in equity, so to speak, retrospectively. You continue with the long-term loan agreement as normal. This Strategy is also recommended if you expect to receive a large amount of money in a few years (inheritance, life insurance expiration, severance pay or similar).

Real estate acquisition: from the exception to the rule

Let's move from the exception to the rule: in Germany, real estate buyers usually bring in equity. This is even in times of low interest rates useful, because the more equity you invest, the less borrowed capital (i.e. home loan) you need. The financing costs are correspondingly lower. In addition, you can live debt-free in your own four walls faster. Although there is no rule of thumb as to how much equity you should ideally bring in, consumer advocates and financing experts recommend at least 20 percent of the property price. The lower limit is usually an equity capital of 30.000 euros.

At the beginning of your financing concept, there should be a realistic cash flow – even before you start looking for your dream property. After all, anyone who has taken a fancy to a chic apartment or a representative house at correspondingly high prices often tends to count themselves rich. That is, the existing assets become optimistic scheduled. Even a slight rounding up can later lead to a financing gap of several thousand euros. Also, keep in mind that every checkout is just a snapshot. Securities accounts, foreign currency investments and precious metals are subject to significant rate and price fluctuations. I therefore recommend that you make haircuts of between five percent for securities that are less susceptible to fluctuations (bonds) and 15 to 20 percent for stocks, stock funds and gold.

Equity checklist

The following checklist helps you to determine your equity:

How much credit can you afford?

Now that you have calculated your equity, you know approximately how high the financing requirement is. In the second step, you should therefore determine your long-term financial viability, i.e. how much credit can you afford? Here, too, it is important to calculate realistically and not to be satisfied with just a snapshot. Her Income and possibly that of your partner may currently be quite good. But are you for surethat this will be the case for years or even decades? It doesn't always have to be illness, other personal strokes of fate or economic crises.

Also think about your personal family planning. If youngsters appear, there is at least a temporary loss of income. And everyone knows that children cost money. The state child benefit is hardly enough to compensate for this additional financial expense. So I recommend that you always use a safety margin of at least ten percent when calculating your financial scope in order to have a sufficient financial buffer. The following checklist gives you clues as to how you calculate your financial scope, which is available to service your building loan (i.e. interest plus repayment).

Calculate your financial scope

1. Household income per month

hh net income

hh net income partner

hh investment income (if still available after property purchase) hh other regular income

Total monthly net income …………………… .Euro

© of the title »Help! I'm buying a property «(978-3-89879-907-2)

2017 by FinanzBuch Verlag, Münchner Verlagsgruppe GmbH, Munich ¹⁵ For more information: http://www.finanzbuchverlag.de

1. How to determine your financing needs

2. householdexpenditure per month

hh Daily needs (food and drink)

hh Other household expenses

hh incidental housing costs

hh clothes

hh car, bus, train

hh insurance

hh Current loan commitments (except home loans) hh Maintenance commitments

hh Private old-age provision / savings contracts Total monthly expenses ………………… .. ………… .Euro

Next Step:

Monthly net income:

Minus monthly expenses:

Minus security discount (about 10%):

= free funds

Now you know the maximum load that you can carry each month. How much credit you can afford with it - i.e. your individual debt sustainability - naturally depends on the interest rate on your loan. The amount can be calculated using a simple formula. It is:

Maximum portable monthly load in euros × 12 months × 100 interest rate + repayment

If you do not want to use the calculator right away, the following table gives you a rough overview (the amounts are rounded):

Source: Own calculations

The alternative sources of money

Until a few years ago it was quite common to look for alternative sources of money to reduce the size of the home loan. In particular, your own employer and close relatives were welcome as lenders. Of course, these are also loans. That is, the money from Executive or by close relatives may not be viewed as equity. Of course, you also have to repay these loans with interest.

1. In principle, some employers are willing to lend to committed service providers or experts who are difficult to get on the job market. This is especially true when business is booming and the company is in a healthy economic condition. However, as an employee, you are in an additional dependency relationship with your boss. If you leave the company, you will have to repay the loan.
2. Particularly committed service providers or experts, who are rarely found on the job market, usually have very good cards for getting a loan from your employer, although experience shows that the willingness to do so decreases in economically difficult times. The employer hopes to bind the employee (i.e. borrower) more closely to the company. On the one hand, the employee should settle near the company, which usually reduces the willingness to change companies. Secondly, there is the obligation to repay the loan if the company leaves the company prematurely. In addition, the employer must use the market interest rate. If he escapes you too far, there can be trouble with the tax office. The Treasury may then demand taxation of the interest saved as a "monetary advantage," that is, as additional income.
3. Friendship usually ends when it comes to money. This is what you should keep in mind when accepting a relative loan. It works similarly to the employer loan mentioned. You receive money on particularly favorable terms, and the lender is satisfied with subordinate protection in the land register. This is important insofar as the financing bank insists on first-class protection in the land register.

In times of very low interest rates, however, employer or relative loans make little sense, because these alternative sources of money are hardly likely to be cheaper. A different situation can of course arise if the interest level for home loans rises significantly again. However, this is not to be expected in the short to medium term. However, these alternative sources of money can be interesting if your financing needs exceed the loan-to-value ratio for the loans you have Eye exceeded real estate. Then the mortgage lenders usually demand interest surcharges. With the help of an employer or relative loan, you can keep the financing requirements below the loan-to-value limit.

Caution, money laundering!

Be on guard when a relative wants to pay you a loan in cash. I don't want to impose bad intentions on anyone, but it could be money laundering. The relative loan should therefore be transferred to your account and your relative must be able to provide a clear explanation of where the money comes from at any time. Otherwise, you and your seemingly generous relative may face tax punishment in the worst case.

A much better one Solution presents gifts as anticipated inheritances. If you expect a larger inheritance from your parents later anyway, you can have part of it given to you now. Within the framework of the rather high allowances, you do not pay any Taxes on this donation. You also save on interest and principal. The tax-free allowance for gifts to children or stepchildren amounts to EUR 400.000 per child and parent. Your parents can therefore give you a total of 800.000 euros (400.000 euros each from the Mother and the father) without the Treasury Hand stops. In the case of complicated asset structures, however, it is advisable to consult a tax advisor or specialist lawyer to be on the safe side in any case.

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