As part of a home loan financing usually larger sums flow, so mostly loans with a fairly long term come about. However, a certain amount of equity is usually required here as well.
Cover incidental expenses using equity
Banks usually make sure that ancillary costs are covered by equity.
Basically, the equity capital can not be high enough for mortgage lending. However, at least a certain minimum should be present. For example, banks usually make sure that at least the ancillary costs, such as the land transfer tax for the property, can be paid by the buyer.
In addition, it is advisable to schedule certain reserves in good time before the construction of the house, since in such a project, even unpredictable tasks are often assigned to the clients. If it is a property that is used by itself, then offers a buffer of several thousand euros. As a rule, one assumes here about three net monthly salaries. For example, it is easily possible to handle sudden repairs, back payments and the like.
If the property is rented, any repairs and rent losses of a few months should be taken into account here, so that they are affordable from regular income. Otherwise, it can happen quite quickly that you get into financial difficulties.
Tip: In the case of real estate financing, an equity stake of 20 to 30 percent is usually advised. With a corresponding sum one is thus usually on the “safe side”.
The interest rate for which the banks a credit awarded depends on the risk that the bank received. The following applies: the less equity the builder brings, the higher the risk, which in turn increases the interest rate.
Attention: What is not familiar to every client is the fact that their own credit rating also affects the level of interest rates : with a good credit rating, the interest rate is lower, but higher with a bad credit rating. Accordingly, it is advisable to always pay attention to a good credit rating.
Pay attention to the interest and save.
When taking out a construction loan, it is also advisable to calculate well from the beginning. Because, for example, due to unexpected, very high craftsman bills, a second loan needed, this is often not only a very difficult task, but it must be expected here usually synonymous with higher interest rates.
Furthermore, when using low equity it is advisable to pay attention to a higher repayment. In this way, the residual debt, with a follow-up financing, lower, which the borrower in any interest rate increase in any case benefits.
If the construction loan is taken out during a low interest rate phase, it is advisable to agree a very long fixed-interest period with the bank. Usual are here about ten to 15 years. In this way, you will benefit for a fairly long time from the fixed, low interest rates. Increases the general interest level, that does not matter for the borrower: Decisive for the duration of the loan term, the interest rate in the loan agreement has been agreed. So a lot can be saved.
Equity – What is it?
Not only cash counts for equity, but also various investments.
Banks do not consider cash as equity alone. For example, the banks also count own contributions of up to 15 percent on equity. Among the popular contributions include wallpapering or the installation of doors.
However, more difficult activities that lack the necessary expertise should be carried out by a specialist. In addition, it may also be the case here that the bank rejects its own services in such cases.
Furthermore, one usually benefits from a certain guarantee when placing an order with a craftsman. In addition, should something not turn out to be your own satisfaction, it is usually always possible to take the craftsman for it in recourse.
But also endowment policies, home savings contracts and other investments are equity.
By minimizing the risk of default for banks by injecting equity, borrowers usually benefit from lower interest rates. Accordingly, from this point of view, it is also worth investing equity capital in mortgage lending.
Real estate financing at 110 percent
A real estate loan that is 110 per cent financed is a loan without equity.
If, for example, a property is bought with the help of a 110 percent financing, the bank not only finances the purchase price here, but also the ancillary costs incurred. This means that the borrower does not raise equity here.
However, there are a number of hurdles to overcome for such financing : for example, the banks here pay close attention to excellent credit ratings and excellent Private credit information. Likewise, a secure, steady and accordingly high income must exist.
In addition, the banks here make sure that the desired property is not only in a good location, but also in good condition.
Likewise, in the case of home equity financing without equity, usually higher interest rates are charged, which also means that a higher monthly installment must be paid.
Usually, a 110 percent financing, especially for people with an invested assets, which in turn provides a higher return than the interest on the loan. But even for young borrowers with a high income, who are not in any difficulty with high repayment rates, such funding is a good option. The same applies to officials who are in senior positions and thus receive a correspondingly high income.
So before considering a 110 percent financing, you should be aware of the costs involved.
For mortgage lending, the more equity there is, the better. So it is possible in various ways to save a lot. For example, borrowers receive lower interest rates. Usually, however, at least the additional costs should be paid by equity.
However, it is generally the case that banks recommend at least an equity ratio of around 20 to 30 percent. However, not only cash is considered as equity, but also building society savings contracts, endowment life insurance policies and similar investments.
As part of a real estate financing some banks also give so-called 110 percent financing. This is financing without equity, but for which special conditions must be met. This includes, for example, a very good credit rating. However, as no equity is contributed, higher interest rates are incurred. The influence of equity in mortgage lending is very high, so it is best to save in advance in advance a certain amount.