
How much equity do I need to purchase real estate?
Many banks have become more cautious when granting loans, according to financing experts. They will apply risk discounts to certain properties, especially in peripheral regions such as Brandenburg.
In addition, according to experts, they have also tightened their lending guidelines. For example, different flat rates are now being applied for living, operating, and heating costs. Whereas operating and heating costs were 2.50 euros per square meter in recent years, banks are now charging up to four euros. They are also applying flat rates that are 10 to 15 percent higher for living expenses.
How much equity do banks expect?
Rule of thumb: the more equity you contribute, the better the terms. According to financing experts, at least 15 to 20 percent of the property price should be covered by your own funds.
In addition, you must pay the ancillary purchase costs such as land transfer tax and notary fees from your own funds, as banks do not finance these costs. This is because there is no material equivalent value for these costs for the banks, which would secure the loan.
If a bank does offer financing for this, the interest rates will usually be very high. Alternatively, you can take out an additional installment loan or a private loan from friends and relatives to cover these costs. In any case, it is advisable to calculate thoroughly in advance whether you can afford the monthly repayments for all loans.
Example
If, for example, you are buying a property that costs €300,000, you should contribute around €60,000 – i.e. 20 percent – of your own capital for the property financing. Depending on the federal state, the real estate transfer tax is between 3.5 and 6.5 percent of the purchase price. At 6.5 percent, you will therefore need to budget an additional $19,500. Notary fees amount to an average of 1.5 percent of the purchase price, or $4,500. In this example, a total of $84,000 in equity must therefore be contributed.
Buying real estate without equity
It is possible to buy real estate without equity under certain conditions. If you have a high income, low living expenses, and the property is inexpensive, a bank may grant you 100 percent financing. However, the decisive disadvantage is that the interest rates will be very high. This means that you will have to pay a higher monthly installment and it will take longer to pay off the loan.
So seek advice from a financing expert before you start looking for a property.
Are you unsure how to find and finance an affordable property? Contact us! We will be happy to advise you and recommend financing experts.
Notes
For reasons of readability, the generic masculine form is used in this text. Female and other gender identities are expressly included where necessary for the meaning of the text.
Legal notice: This article does not constitute tax or legal advice in individual cases. Please consult a lawyer and/or tax advisor to clarify the facts of your specific case.
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