Owning is tempting. Also more and more young people think about a corresponding house financing. Because, as simple as it sounds, the sooner you start, the sooner you’re done. Who decides for a real estate financing in young years, should consider however some things.
Favorable interest rates entice to buy a house
Interest rates have seldom been as cheap as they were during the euro crisis. That means that at the moment also extremely favorable building money is to be had straight. Depending on the conditions, effective interest rates of between two and three percent are currently available. For many investors, real estate in safe Germany is still a reliable investment. As long as this remains so, the mortgage rates are also still unbeatably low.
So it’s no wonder that young people between the ages of 20 and 35 are also increasingly interested in financing a house right now – a dream that can certainly come true. In any case, the purchase of a property is a more sustainable purchase than that of a fast car or a luxurious trip.
One thing above all is important when financing a house at a young age: knowledge and information. Before embarking on the "home of one’s own" project, it is essential to familiarize oneself with the circumstances, conditions and technical terms so as not to be seen as young and naive in negotiations.
Classic construction financing: the three-pillar model
The common and quite proven model for financing a property are the classic three pillars: equity, development loans and a bank loan. If you use all three pillars, you end up with efficient and, in the long term, favorable financing. Especially if you are still young, however, this has a catch: Who has already saved up significant equity under 35?
It does not go however completely without own money, because who aims at a financing without any own capital funds, must accept with the interest expensive compromises. Since the subprime crisis in the USA at the latest, it should be clear to everyone just how shaky the foundations are for financing a house with 0% of your own money.
The bank loan to finance a house basically always works as a mortgage. This means that the house you are building or buying also serves as a pledge for the loan. If one cannot repay the credit, the bank still has the house, which it gets in this case. However, one must not forget: Who buys a house, always has considerable additional costs.
He has to pay more than the house is worth as a whole – the notary alone receives about two percent of the purchase price for his services. Accordingly, in the case of financing without any equity, even the bank cannot assume that it will get back all the money the customer has borrowed in the event of a loan default. Because that is at least a little more than the house is worth. This risk lets itself the bank also over higher interest pay.
Ratio of bank loan and equity
So it is not possible without equity capital. A rule of thumb says that you should bring at least 20% of the required amount yourself. There are upward and downward deviations from this rule of thumb. Great conditions you get of course, if you can bring 30% or even 50% equity capital.
But who has in young years already 50.000 euros in the bank? As a minimum requirement one can regard an own capital funds ratio of ten per cent, particularly with comparatively favorable real estates such as a one to two-room dwelling. Thus one still gets reasonable interest with many banks.
How to generate equity depends on the individual case. Some are lucky enough to inherit a little money. Others can count on the support of their parents, whose home has already been paid off.
Some have no choice but to save themselves and with a lot of discipline painstakingly put aside a little money every month. A building savings contract is basically a good thing – especially if you also receive capital-forming benefits from your boss.
However it takes also its time, until one can use a building saver really. Depending on the contract, you have to put in ten to 15 years first before you can use the money. In the technical jargon it is called, the building savings contract is ready for allocation. So if you plan for the long term and start such a savings contract at 20, you can use it to finance a house at 30. This is the arduous reality.
Loans: subsidized loans and ordinary bank loans
Particularly in the area of home financing, there are still some programs today that offer loans at favorable conditions. The money flows thereby mostly over the credit institute for reconstruction (K). One must apply for such a promotion credit however with its house bank. The K home ownership program is basically open to everyone.
Here one can with an interest rate starting from 1,97% a loan over maximally 50.Get 000 Euro. The mediating bank strikes here however still own margin on it. If you have an energy-efficient building project or a renovation plan, you can also get a higher loan amount from K. Also the Lands of the Federal Republic have own promotion programs, with which usually income borders are to be considered. Here it applies to inform.
The rest of the financing is then forced to be done through ordinary real estate loans at the bank. Fortunately, their conditions are generally better than those of consumer loans. Especially for young people, the loan should nevertheless be as flexible as possible. Changing jobs or moving to another city are still the order of the day here.
Special conditions can be agreed upon for this, which adapt a real estate credit to the life-style of young humans. The possibility up to three times a rate to suspend, without having to pay penalty for it, is such an instrument. Especially when changing jobs, it can be very relieving not to have to repay a loan for a month – even though a financial cushion of three net monthly salaries is always advisable.
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But perhaps even more important is the possibility of a pledge exchange. In such a case, the bank allows the borrower to transfer the current loan to another property, for example in another city.
Calculation: How much does my house actually cost??
Before starting a financing every owner in spe should make a detailed calculation. It is also a matter of estimating how much capital one actually needs. Because the purchase price for the house or apartment is by no means the end of the story. Under no circumstances should one underestimate the costs of conversion and renovation work.
However, other factors must also be included in the capital requirement: the brokerage fee of 3.5% to 7%, the land transfer tax of a further 3.5%, the notary fees of 2% and possibly also the court costs of 1% of the purchase price. All in all, at least an additional 13.5 % of the purchase price must be included in the capital requirement. Who does not buy however but builds, should not forget possible development costs.
Author: Stephan Scharfenorth, managing director of the construction financing portal Baufi24.
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