Rents are high in many cities, and interest rates on loans are historically low. Some people think of the purchase of a house or apartment. Here’s what you should consider when financing. We have compiled 12 important tips for you, so that nothing goes wrong in the matter of real estate financing.
Living in one’s own four walls is an important life goal for many people and a good cushion for retirement provisions. But if you calculate carelessly and do not finance carefully, you take high risks.
Our 12 tips on real estate financing will help you assess:
1. Check equity
Check if you have enough equity to buy your property. 10 to 20 percent of the purchase price plus the ancillary acquisition costs (for land transfer tax, notary and land register entry) you should bring with you. The more, the better, because the interest rates will be lower. You can get by without your own money only if your income is really good and stable. You should definitely not have to finance the incidental acquisition costs through a loan.
2. Consider incidental acquisition costs
In Hamburg, you also have to reckon with about 6.2 percent in ancillary acquisition costs. Of this, 4.5 percent is due for land transfer tax and 1.7 percent for the notary and land register entry. In other states, the real estate transfer tax is higher. If you have found your new home through an estate agent, you will also have to pay a standard local commission including VAT. The brokerage fee can range from 3.5 to 7 percent, depending on the region
3. Calculate interest and repayment
The rule of thumb for calculating the monthly burden is: (nominal) interest plus 1 percent repayment divided by 12 months. An example: you have agreed on an interest rate of 4 percent, then add one percentage point for the repayment. 5 percent of 100.000 euros of borrowed money add up to 5.000 Euro burden annually. So divided by 12 months, the loan costs 417 euros a month.
In low-interest phases, when money is available at low interest rates, it is worthwhile to increase the repayment. In our example you now have the 100.000 euros borrowed at 3 percent interest. So you can estimate 2 percent for the repayment and still remain with a monthly burden of 417 euros.
4. Take housing subsidies and reserves into account
Even if you have bought your own apartment, you are by no means living for free. For the garbage disposal, administrative costs and so on housing allowance is incurred. You also need to set aside a reserve for repairs. The charges amount to about 3 to 3.50 euros per square meter for new buildings and 3 to 4 euros per square meter for old buildings per month.
5. Calculating through stress
Including incidental expenses, the monthly burden should not exceed 40 percent of your net income. Thereby the 13. and not take into account additional monthly salaries. If there are two incomes available, keep in mind that one salary may be temporarily eliminated, for example, due to the birth of a child.
6. Use amortizing loans
The simplest form of loan is the best: the amortizing loan. You’ll pay off at least 1 percent of your loan in a year this way.
7. Stay away from combi-models
A combination model usually doesn’t pay for itself. Instead of paying off, save into a home loan or life insurance policy. But the better way to save is to pay off your loan, because interest rates on savings are always lower than interest rates on loans. More about combination loans
8. Claim grants from the state
Families should find out if they are eligible for public assistance. In Hamburg, for example, the Investitions- und Forderbank grants a "FamilienStartDarlehen" (family start-up loan) – this is a loan at favorable conditions. Since 2018, families and single parents with children throughout Germany can also apply for the so-called Baukindergeld, if their annual income does not exceed a certain amount. Those who are eligible will receive per child 12.000 euros, paid in 10 annual installments of 1.200 euros. However, the subsidy program expires at the end of March 2021.
Energy-saving construction measures for new and old buildings are also subsidized by the Kreditanstalt fur Wiederaufbau (K) and sometimes also by regional programs. You can find suitable funding programs quickly and easily via the K Bank information portal.
9. Choosing the right fixed interest rate
If interest rates are low, you should choose a fixed interest rate of 15 years or more. This gives you planning security. According to § 489 BGB (German Civil Code), you can cancel contracts with such long fixed interest rates 10.5 years after the full payment at any time in whole or in part. This gives you a buffer zone over the last five years in which you can monitor interest rate developments.
10. arrange special repayment
To get rid of your loan faster, if your income allows it, you should arrange unscheduled repayments. In the meantime, almost all banks and financial institutions offer special repayments of 5 percent as standard. In addition, many providers grant redemption changes of 1 to 5 percent.
11. avoid tax saving models
Never sign a real estate contract to save taxes. Not even when seemingly reputable banks or notaries are behind it or "rent guarantees" are given. Apartments offered in this manner are usually overpriced, high commissions must be paid, and the projected rental income is not realistic.
12. Monitor the market
Look at as many apartments and houses as possible before you decide. This is the only way to develop a feeling for the right price and you will very quickly find out where you want to live and where not to live.
You want to realize your dream of owning your own home? Get advice in person, by phone or in writing on questions of construction financing or buying or. Building contract advised by us. Take advantage of our independent consulting services!
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