Construction interest rates are lower than ever before – so the dream of building a house seems attainable for many people. Those who want to finance their house without any equity should think about it thoroughly: while there are reasons against building a house without equity, there are also some advantages from this option of real estate financing. For tips on buying your own home or other real estate, see our guidebook.
Good reasons for buying a house without equity
Who has a secure job with a high income, for which a house construction or house purchase without equity can be worthwhile. For the banks, this full financing is associated with a risk, which they are happy to pay with higher construction interest rates. For this reason, banks prefer such customers who have a fairly high and above all secure income have. Young families can be welcome borrowers even without significant reserves for banks – the good and secure earnings must be proven.
Permanent employees usually get a loan for home financing without any problems after the end of the probationary period. There are lenders who still distinguish between freelancers and tradesmen: Freelancers include doctors and lawyers, who have good chances of obtaining a loan for construction financing. For comparison, tradesmen have it harder when they want to get a loan for the construction of home or business real estate. You have to pay a higher risk premium. Basically, the following applies: A Full financing should not exceed 8 times the annual net income.
Buying a house without equity: the advantages and disadvantages
For those who want to build a house without significant equity, the current low-interest phase offers: Almost all banks offer favorable loans for construction financing. However, those who first want to save their own capital, get little interest for it. Experts warn: Those who have to calculate tightly, an unforeseen event can thwart all plans and financing. If health or professional changes occur, private insolvency can quickly become a threat.
When buying a house without equity, not only the Interest rate for the loan higher, but also its term longer. Those who have equity require a lower loan amount and have paid off their house faster.
Tip: Any construction financing and renovation loan should be done with the help of professional advice. With the multitude of different offers a comparison of the loans is not easy. However, those who want to have their savings at their disposal despite buying a house can also choose full financing of the house purchase. If the main earner becomes unemployed or ill, he can pay the monthly installments for the loan from his savings. The same applies if the washing machine or the car must be replaced. Without any reserves, buying a house without equity is almost impossible and plunges the entire family into financial difficulties.
Buying a house without equity: The process
For the house purchase without equity, the same rules apply initially as for real estate financing with equity. Who takes out a loan, should take advantage of low interest rates and this with as long fixed interest rate and high repayment link. However, after the fixed-interest period has expired, the residual debt is still high. If the future owner expects a gift or inheritance, unscheduled repayments can be made and the debt on the house financing can be minimized.
Compare the offers of the house financing well with one another
As with any loan, the various loan offers must be carefully compared when taking out a full loan. The future builder should pay particular attention to the Effective interest rate and residual debt Have, which is still left at the end of the interest formation period. If the builder miscalculates when taking out the loan and cannot afford the installments for the property, there is a risk of a distress sale later on. As a rule, he achieves a price that is far too low and is also left with the debts. If you plan your home financing carefully and conscientiously, you can avoid such situations when buying a house.
Incidental costs when buying a house without equity
Home builders without equity should remember when financing the construction that not only the construction costs, but all incidental costs must be covered. Construction financiers and banks advise in such a case to a loan, which up to 120 percent of the construction sum covers. This will pay for ancillary costs such as land transfer taxes, notary fees, broker commissions and insurance.
What ancillary costs are incurred when building a house?
Even before the actual construction of the house, the first costs have to be paid: This applies, for example, to the land transfer tax and the building permit. If you buy a plot of land, you pay notary and land registry fees. Before construction, the property must be surveyed and measured. With prefabricated houses, ancillary costs must also be taken into account: If the construction of a road is necessary for the transport of materials, these costs must be borne in addition to the construction contract.
During the construction phase Good insurance is a must. This includes the construction performance insurance and the builder’s liability insurance. During the shell construction phase, the house is connected to all plumbing: This also incurs further costs. Who does not keep the additional expenses in the view, comes already before the move financially into the Stolpern. In particular, if he has no equity or money reserve.
House financing with and without equity: A comparison
Home financing without equity:
Assuming the price of the house is a favorable 200.000 euros. With an average of 15 percent incidental costs come another 30.000 euros in addition. Who has no equity for the house purchase, at least the 200.000 euros as a loan and pays an interest rate of 3 percent. With a ten-year fixed interest rate and an annual redemption of 3.5 percent, the monthly installment for the house 1.083 euros. After ten years there are still 118.531 euros of residual debt available.
House financing with equity:
If the future owner has more than 50.000 euros of equity, he gets a loan from the bank with a more favorable interest rate of 2 percent. From this he repays 2.5 percent annually and pays monthly 563 euros. After ten years, when the fixed-interest period expires, he still has 108.458 Euro debt. If a relatively high repayment is chosen, the residual debt at the end of the interest accrual period is similar. However, the higher interest rates and the higher repayment also lead to a higher monthly burden.
Raise enough credit with a subordinated loan
A subordinated loan opens up an opportunity, finance more than 100 percent of the house price without equity capital. There are special banks that specialize in such financing and complement the offer of a classic loan. While the largest part of the construction financing is lent by the bank via a mortgage loan, a third provider grants a further loan via the open amount. Since the bank or savings bank already uses the property as collateral for the loan, the second loan cannot be secured with the property.
If the borrower is insolvent, the bank can assert its claims first – and only then the special provider. That is why this form of loan is called subordinated loan. Thus, the loan is more risky for the bank and can be compared with a normal installment or consumer loan. Nevertheless, the following applies in this case: For the subordinated loan, the bank requires the following significantly more interest, as their risk is greater. Those who wish to take out a subordinated loan should see this as a last resort. Finally, there is also the risk of private insolvency.
A guarantor can provide additional security
Those who are lucky enough to have solvent parents or siblings can secure their financial support. This can take the form of a personal loan, but also facilitates financing for the construction of a house without equity capital. For the bank a guarantee means a higher security. In principle, the guarantee is possible, but who guarantees as a private person for another loan, should know what he gets involved in. If a house construction without equity is to be financed by means of a loan, this can be secured with three different guarantees:
- Default guarantee
- directly enforceable guarantee
- directly enforceable guarantee with waiver of objection.
For the guarantor, the deficiency guarantee means a high level of security. Although it must make do for the debtor in the case of emergency, but before the creditor must act unsuccessfully against it. If a guarantor takes over the directly enforceable guarantee or directly enforceable guarantee with waiver of defense, the bank can turn directly to the guarantor. The detour via the borrower is waived. If you only want to provide a guarantee for part of the construction financing, you should therefore not provide an unlimited guarantee. It is advisable to limit the amount of the guarantee and the term of the guarantee.
The prerequisite for building a house without equity
When building a house without equity, the builder must first find a bank that is willing to provide construction financing. However, not all banks offer such financing. This applies especially to banks that offer particularly favorable conditions for real estate financing. Experts recommend paying at least the ancillary costs yourself. To ensure that the residual debt is not exorbitantly high after the fixed-interest period has expired, the Repayment rate at least three percent amount. In this case, the monthly installments are significantly lower later on.
Tip: Debt-free in the house purchase
If you want to have your house financed by the bank without equity, you should not have any other debts: Every bank will satisfy itself of the applicant’s creditworthiness before granting a loan. If a current installment loan is registered with the Schutzgemeinschaft fur allgemeine Kreditsicherung (Schufa), it should not be too high. For the borrower, it is not worthwhile in the long run to present the financial situation better than it really is. As a general rule, the burden of a loan and construction financing is should not exceed 40 percent of net income should not be.
Whether buying or building a house: Take advantage of the state subsidy
Although the construction subsidy from the state is small, it should be taken up. Above all, if he would like to stemming its house purchase without own capital funds. Low-interest loans are available from the K Bank and can be used when buying a house. Who builds its house particularly energy and environmentally conscious, receives likewise appropriate promotions.
However, there is a catch: all K loans can only be applied for and processed via one bank. Most banks are happy to grant K loans, and some even take advantage of the higher margin and improve the K Bank’s favorable conditions even further. Private builders also receive assistance in some states and grant favorable loans for home construction.
Conclusion: Financing without equity is feasible if the general conditions are right
If the own income is safe and sufficiently high, a house construction can be financed without own capital funds. Finally, with such financing, the monthly installments are significantly higher due to the interest and amortization rate. Anyone who is still on probation or only has a temporary contract should not buy a house without equity until their income is secure for the long term.