When people think about financing a home, there is a lot to consider. Here it does not matter, which the prospect wants to build completely new or whether he converts an older house and modernizes. Fewest can finance these investments out of pocket.
Financing a property poses some challenges. From financing to buying to modernization and protection, builders have to overcome some hurdles. Owning your own home or apartment is probably one of the biggest investments that most people make in their lives.
Therefore, everything should be carefully thought out. After all, financing of this size usually lasts for decades as a fixed cost. In times of low loan interest, people are quicker trying to seize the favor of the hour. Nevertheless, they should not rush things.
First of all, you have to record what amount is available for repayment and interest in the month. In addition, prospective borrowers are not allowed to disregard the large sums that are due each month and the long maturities.
Income versus loan
When customers consider building or buying a property, what is the cost? As a first, customers should look at their credit page to find out the financial scope.
Bank lending initially determines family net income. Of these, banks set about 35 percent as the maximum monthly installment. Banks are using this monthly installment to increase the loan amount. Then it is decided whether a loan in the desired amount for the prospective customer is even possible. Whether he is creditworthy depends on this monthly financial spread.
If interesting finally decided to take the risk, some decisions have to be made regarding the contract details.
An important criterion is equity. The basic rule is at least 20 percent of the purchase price, preferably even more. Because the higher the equity, the less the loan has to be taken up and that saves on financing costs. High equity means more security and reduces the threat of potential defaults.
Equity includes, for example:
Bauspar contracts Savings
Debt free land
Mortgage lending without equity
Mortgage lending without equity is possible under certain conditions. The current low construction rates favor this. But this type of financing also carries risks, because the term is longer and moreover, it costs more. There are two versions for this.
First, the 100 percent financing, which is the purchase price of the property financed by a loan. Incidental costs such as notary fees, land transfer tax or brokerage fees are borne by the client himself. On the other hand, the 110 percent financing. In this full financing additional ancillary purchase costs are covered by the loan.
By the own achievement the loan can be reduced, if the builder can provide certain achievements themselves. Usually, credit institutions accept that benefits can be compensated up to about 20 percent. For most, about ten percent is realistic.
After equity and own contribution, mortgage lending is used. The sum depends on the mortgage lending value of the object.
Monthly rate – repayment – interest
The amount of the monthly installment can change and limit the living conditions. The monthly installment is joined by ancillary and consumption costs. The maximum limit is 35 percent of the family income. Nevertheless, builders should ensure that a reasonable percentage is paid. Preferably, two to three percent apply here.
Special repayments provide flexibility and ensure that the loan is repaid faster. Special repayments must be enshrined in the loan agreement.
Fixed interest is almost one of the most important criteria in the contract. In times of low interest rates, it pays to tie them in the long term, for example, at the age of fifteen or more. At high interest rates, it is reasonable to choose a short term.
Mortgage lending – various types of financing
The most common loans at a glance:
Construction loans for initial financing and follow-up financing are granted to parties monthly installments and fixed interest rates. This type is used for financing up to about eight years. After expiration most of the time no residual debt remains.
The annuity loan is the most widely used type of financing for initial and follow-up financing. This loan can not be terminated before expiry of the fixed interest period. After the interest binding usually a residual debt remains.
Building society urgent financing:
The Bausparsofortfinanzierung is a building loan for a first financing for immediate financing. There are parties monthly installments and fixed interest parties. It can not be terminated before expiry of the fixed interest period and no residual debt remains outstanding after expiry.
The KfW loan is usually used as an additional financing element. It is a construction loan for initial financing and follow-up financing. This type of loan also has parties monthly installments and fixed interest rates and after expiration usually remains a residual debt.
Mortgage lending – the most important insurance
If builders have completed the financing, they also need important insurance, such as a builder’s liability insurance, because the builder is responsible for everything that happens on the site. Similarly, a construction insurance is rational, because this protects against unforeseen damage, such as theft and destruction, during the construction phase.
Also important is a homeowners insurance for the property. Mostly the partner with the highest family income bears the financial burden. If he can not pay more for it due to sickness, accident or death, this can often not be enough for one alone.
Therefore, a term life insurance to cover the death, a disability insurance to protect the workforce and accident insurance must be thoroughly considered. Unemployment and residual debt insurance would be worth considering.