If you watch a ski jumping competition, it becomes clear relatively quickly that it’s not just about how far the athletes jump. To win a ski jumping competition, you need the highest score. This is calculated from the distance, the wind points, the posture marks and from which gate the respective athlete started. The ski jumpers themselves have often said: "If you are not an insider, then you do not know".
How exactly the points are calculated after a jump, is almost a science of its own and difficult to understand as a layman.
When it comes to the evaluation of a financing by the bank, it is very often difficult to understand as well
Even there, there are a lot of rules, valuation criteria and seemingly inscrutable specifications. If you need a home loan or apartment loan, then actually only exciting for you:
- How much costs me the real estate loan or. what conditions do I get (and can / do I want to afford it)?
- How do I get better Conditions?
However, the two questions are answered by the rules and evaluation criteria already mentioned. Therefore, you should know the basics about it. The whole thing is also not as complicated as it seems at first glance – especially after you read this article.
Among other things, we will look at the following points in detail:
1. How much equity is necessary for a reasonable financing or. how does a bank evaluate the whole thing?
2. How much Income you need to be able to finance reasonably and how calculates that again a bank?
3. How does all of this in combination affect your Credit conditions from?
How much equity is really necessary when buying a house or apartment?
And how does a bank evaluate this?
Especially around the topic of own funds many fairy tales are circulating..
- "At least 1/3 of the credit."
- "No own funds at all" is also possible."
- "Blah blah blah"
The truth is: there is no blanket answer to how much equity is necessary. But there are a few facts that (almost) always apply:
Per more own funds you have, the better (this is actually a no-brainer).
As soon as the bank receives an "Blank share" must finance, the condition bad.
What does "blank share" mean in this context??
Let’s say you buy a property around 500.000 € (incl. of all ancillary costs). Own funds you bring 40.000 € with. The bank estimates resp. sets your real estate now, however, with only 400.000 € in their calculation / estimate.
So from the bank’s point of view you now have a total value of 400.000 € property value + 40.000 € own funds. This leaves 60.000 € left for which there is no collateral. That is the blank. (Annotation: This is a very simplified description, but on the whole it works like this.)
A large part of the banks basically does not want any financing with a blank share
If they do finance the project, then the condition (= your interest premium) will be worse. This situation must be avoided at all costs. Because if that’s the case, here’s what happens…
First, you are limiting your options when choosing a bank (if 8 out of 10 banks say they won’t finance, that’s rather suboptimal) and second, you definitely won’t get top terms on your home loan or mortgage. Get housing loan (even if the bank that does it then might tell you that& ).
How much own funds you should have now absolutely?
As mentioned above, there is no one-size-fits-all answer to this question. An absolute minimum should be the following: You should be able to cover the entire purchase and ancillary financing costs absolutely from your own funds. Preferably even a little more. This means that in most cases you should bring at least 10% of your own funds – but better 15%.
Again mentioned: This does not mean that with less own funds no financing is possible or that you can not get a reasonable house loan or a mortgage. housing loan. How reasonable the financing will be, however, is to be questioned.
Of course, considering your own resources is only half the battle (no pun intended)
If you get 3.000 € gross income, own funds of 200.000 € but have a property around 1.000.000 €, then you would bring 20 % own funds, but you will still not be able to afford the loan. In this case you simply earn too little. How much income is really necessary, how the bank evaluates it and how you should evaluate it personally, we will see in point 2.
How much income do you need to be able to afford your dream house/apartment??
And how does a bank calculate it?
Actually the headline is wrong. Correctly it should read: "How much FREE disposable income do you need to be able to afford your dream house??"
Because it is basically about how much money is left at the end of the month to be able to service a home loan (or apartment loan). Basically, it’s about making a budget calculation to find out if the loan installments are affordable for you.
That is you take your monthly income (incl. 13. and 14. salary) and subtract all your expenses (running costs of the property, energy, car, insurances, living costs,…) from it.
What is left is your reasonable credit rate
To illustrate the whole thing a bit and to go into detail about what else has to be considered, let’s do an example.
Let’s say you buy a property together with your partner incl. your. of all additional costs by 500.000 €. The amount of own funds you use for the loan is 100.000 €. Another 20.000 € you keep as liquidity / nest egg (you should NEVER use your entire savings).
This leaves 400.000 € left as necessary credit. Let’s assume you have a joint income of 5.000 € net. Your total monthly expenses are 2.400 € (Info(by the way, here the value from moving into the property is valid; you don’t have to add the current rent). So if you are currently renting, then you can ignore the rental costs. At 5.000 € income and 2.400 € total costs remain 2.600 € freely available. So the budget calculation shows that the reasonable credit rate is 2.600 € is.
At 400.000 € credit is easy in real terms. If we assume an average interest rate of, for example, 1.625% over 30 years, then the loan installment is about 1.405 €.
Most banks then still calculate with 4 % – 6 % interest high
Also this must go out, so that the bank makes the financing. In the case described above, this would also work out. By the way, this extrapolation is also made if you choose a very long fixed interest rate. This does not make much sense, since the fixed interest rate is certainly lower, but it is usually used as a criterion anyway.
This all sounds a bit complicated
It is not that bad. We have on the topic How much property can I afford? designed its own Excel calculator. You can download the calculator here:
Get the "How much real estate you can afford?"calculator
Get the "How much real estate you can afford?" – calculator!
The calculator comes in a complete package with our ultimate rent vs. Buy Guide – there you can read more about financing in the fourth chapter.
For you personally, the most important thing is that the house loan is paid off without you having to change your entire behavior. If the loan only pays off if you no longer take a vacation, even though you previously took a vacation every year for 10 years, then you should seriously consider whether you are just making a serious wrong decision.
In general, the budget calculation is also used to estimate how tight or easy the financing for you or your company is. you can afford. Think about it and simulate a scenario like:
- What if suddenly there is less income available? Does the whole thing then still pay off?
How do your own funds and your income now affect the condition??
To get a top condition (= low interest resp. Interest surcharge) on your housing loan (or. home loan), it will be necessary to have both sufficient equity and sufficient income.
Particularly with the Eikommen it concerns above all that the affordability is given
If the extrapolation with 4 % – 6 % works, then the subject of income is once checked off. Whether you then still have a surplus of 1.000 € more or not, is basically a "soft fact", but in most cases not a very hard decision criterion for the condition.
The same applies to own resources
Whether you bring 45% own funds or 50% own funds, will not matter. This will not change the condition in the majority of cases. As mentioned above, banks do not like "blank share". What they like is more security. In this context, this means that the loan amount (incl. incidental expenses) is easily covered by the value of the house.
For illustration again an example with numbers:
The purchase or. Construction costs amount to a total of 500.000 € incl. of all ancillary costs. The bank sets for the real estate in its calculation 450.000 € in value to. Own funds you bring 200.000 € with.
So you need 300.000 € credit. The bank has no blank portion – you would even have some leeway with less own funds also to get a super condition.
If you think to yourself right now..
Yes, that’s all very nice, but I can’t conjure up my own funds if I don’t have that much. What does all this do for me?
Yes, that is of course true. You should the information simply help to be able to estimate which factors determine whether you can count on really good conditions, or not. Above all, however, to think about whether it may still be too early to buy your property…
Here are a few more clues as to when it may be too early to buy a property.