The desire for a home is one of the focused goals of many people, especially if a family is present or planned. In addition, a property is always a good basis for retirement. At the same time, there are many questions and potential risks, such as real estate financing, which must be considered when planning. The acquisition and financing of a property is a complex and long-term issue. Accordingly important is the consideration of essential points in order to have the best possible conditions for the project.
Real estate financing must be planned for the long term
The purchase of a property is associated with high costs. A real estate financing, which is easily possible today, can be a problem tomorrow. Here, it is important to have your own life planning in mind. This does not only mean the next years, but decades. What long-term career plans are planned? Who will be the main breadwinner in the family and carry the lion’s share of real estate financing? How many children are planned, and how large and numerous should the premises that are needed be?
What about repayments in the case of long-term illness? What happens in the death of a family member and what happens in the event of a divorce? Should the property continue to be used as a residence when the children are later out of the house, and how safe are the jobs that are indispensable for the payment? Here it is advisable to play through all eventualities. Nobody likes to be confronted with problematic questions and considerations. Nevertheless, it is enormously helpful in an emergency to have taken appropriate precautions and to be able to react prudently to critical situations and currently rather unimportant topics.
The equity share in real estate financing
A rule of thumb is that the amount of equity defines the extent of risk. If a high own contribution is made, the interest rates are lower, and the debt relief of the real estate financing takes less long. Not all interested parties are aware that an already existing pension is part of the equity. A life insurance, for example, can certainly be used. If this is not desired, however, a higher real estate loan must be taken, which will extend the repayment period accordingly.
Not all lenders offer this advice, since in their view the focus is on interest income and the associated higher loan amount. Basically, a high equity is always beneficial. The benchmark is 20 to 30 percent of the loan amount. In individual cases, a complete one hundred percent financing is quite possible. However, it makes sense in every case that the incidental costs incurred can be met from own funds. Also should then be given a monthly installment, which does not exceed the rent for a regular apartment.
Amortization plan for real estate financing
In order to find out what the sum of the real estate financing may be, the maximum amount of the credit installment has to be determined first. For this purpose, the monthly expenses are compared to the revenues. Additional amounts that are only occasionally payable are also to be observed and will be charged pro rata. These include insurance or vacation costs. In addition, enough money should be considered for unplanned purchases or medical expenses.
Reputable lenders recommend a monthly repayment installment of no more than 40 percent of the existing net income. Possible income losses are also important. Higher rates pose too high risks to existing living costs and associated limitations. When considering the installment amount, the desired period of debt freedom is also relevant. For many borrowers, this is the retirement age at the latest. The amount of the installments is determined based on the time available until then.
Consider the total costs to be financed
Real estate financing does not just cover the purchase price for the property. Accordingly, not only the requested purchase price is to be calculated alone, but in addition the entire additional costs. These include, for example, the amount for the broker, the notary fees, the land transfer tax and the land register costs. For this alone, about 10-15 percent of the purchase price may be due in addition. This sum must be included in the real estate financing.
In addition, every home purchase is associated with high additional costs that need to be addressed. This includes not only the expenses for the move, but above all for the numerous new purchases. Even though there may already be plenty of furniture, moving there are extensive things that do not fit into the new object and need to be replaced or supplemented. Even kitchens are to be refinanced in most cases and in addition numerous items of equipment.
These additional costs often range in the higher five-digit range. It makes sense to plan a small financial buffer in the total costing. In most cases, there are hidden or hitherto unknown costs that nobody has thought of, but which are still to be covered.
Finding the right real estate financing
The possibilities of real estate financing are very diverse. Most credit institutions offer different options, which depend on the different circumstances of the borrower. A classic type of real estate financing is the so-called annuity loan. Here, the monthly rate remains the same throughout the term. In the course of the repayment, the interest portion of the installments gradually reduces. Accordingly, the amortization portion gradually increases during this time. The stable rate offers the borrower a high degree of planning security. Another form of financing is the Volltilger loan. It is suitable for all those interested who have a very high regular income. The repayment term and the repayment period are identical and there is a fixed interest period.
A follow-up financing is no longer required in retrospect. The forward loan is a follow-up financing that takes effect after the end of the first loan repayment. It serves to limit the interest rate risk and allows the hedging of low interest rates during the periods, which are particularly characterized by rising interest rates. In addition to the financing models mentioned above, there are numerous other variations that may also be dependent on the federal state. In any case, it is advisable to seek the advice of an independent expert before making a final decision.
The option for special repayment
In the course of life, situations can arise at any time where income improves, for example, through a salary increase. Furthermore, there is the possibility of an additional monetary income, for example, by an inheritance or a gift. Many borrowers are interested in investing these additional funds in the form of a special repayment in the real estate loan. In this way, there is the possibility of a shorter repayment term or a faster repayment. Not every form of loan allows such extraordinary repayment.
Anyone who is interested in this as a fundamental possibility should pay attention to a form of credit that provides for such a special repayment. Most lenders already provide an additional five percent principal repayment at no additional cost. Additional repayments as an option are often associated with a compound interest premium. In most cases, negotiating with the loan provider is worth ten instead of the usual five percent. Often this is granted free of charge, otherwise it makes sense to ask for appropriate offers.
Possibilities of state support
When real estate financing is used to buy a home for a family, it helps to test the claim for public funding. This varies from one federal state to another, ranging from cheap loans to reimbursements for environmentally friendly construction.
Indirect family support exists in the form of Baukindergelds. Here, a loan repayment subsidy is granted, which applies to every minor who lives with the borrower in a household. Crucial here is that child support is drawn for the child and it is not yet 18 years old. Furthermore, the own household income may not exceed the 90,000 euro limit annually with another 15,000 euros for each additional child in the household. The amount of the construction costs per child is 12,000 euros per year.