Financing your own home in three steps
Real Estate Financing. Have you found the right property? Or would you like to build yourself? Then it would help if you had substantial real estate financing. As different as real estate requests may be, the financing process is always the same financing plan helps. Planning phase in real estate financing!
The planning phase is about selecting the right property and determining the existing equity.
- Check available equity
- Check the purchase price of the property
- Assess the location of the property in detail
- For property developers: agree on a fixed price
- For capital investments: clarify tax issues
- The optimization phase for the property
The optimization phase includes the structuring of the equity capital, the determination of the necessary external capital and the determination of the best possible fixed interest rate.
- Optimize equity investment
- Compare offers exactly
- Include public funding
- Choose long terms
- Guarantee flexibility
Protection phase: protection of the family and the property
In the hedging phase, you protect family and property;
- Cover personal risks
- Protecting extreme dangers (natural events)
- Note follow-up financing
- Build up reserves for more considerable expenses (e.g. roof renovation)
- Use special repayment options
- Buying real estate as an investment
Regardless of whether for personal use or as a capital investment – when it comes to financing, real estate buyers should know exactly what is essential.
What does the bank want to know?
Before the bank grants a loan for real estate financing, property buyers must submit some documents, including -it could vary from bank to bank;
- Copy of wage and salary slips for the past three months
- Income tax assessments for the past two years
- Proof of existing equity, e.g. statements from the daily or fixed deposit accounts
- Property documents
INFO! Since the implementation in some countries residential real estate credit directive banks have been checking more closely whether the borrower can pay off the loan in full within a realistic period.
This Is How Banks Rate
The conditions a borrower is offered for his real estate financing depends on several factors. Banks rate positively, for example, a permanent contract or civil servant status, a good score or even if the property is in a good location. Critical factors are a fixed-term employment contract, an ongoing trial period or self-employment.
How much real estate can I afford?
If you are thinking of building or buying a house, you should first get an overview of your finances.
- What fixed income and expenses do I have?
- How much money do I realistically have available each month to pay off a loan?
This results in the right budget. Important: A crisis-proof financing concept takes into account unexpected financial bottlenecks due to unemployment, illness or divorce.
How much equity makes sense?
Real estate financing is possible without equity, but not recommended. Even if interest rates are currently meagre, you should be able to raise at least 20 per cent of the real estate financing from your resources, in addition to the ancillary costs.
REAL ESTATE FINANCING: CONDITIONS AT A GLANCE
Which term should be chosen when financing a property?
Interest rates on real estate loans are at an all-time low. It would help if you, therefore, chose a fixed interest rate of at least 15 years.
Which solution is optimal for real estate financing?
- A high initial repayment reduces the remaining debt more quickly. Because with each payment, the interest portion of the instalment decreases, the repayment portion increases. Tip: Use the current low-interest-rate to set the repayment of at least two per cent.
- Outstanding repayments make sense. Anyone who receives bonus payments or an inheritance can lower the interest payments with an extra repayment and repay more.
- The bank creates a repayment plan for every real estate financing. This shows the development of the repayment and interest components as well as the remaining debt.
How fast does real estate financing go?
From the loan request to the signed sales contract, there is a long way for those interested in real estate. It will be faster if you submit all the necessary documents to the bank quickly.
What types of real estate loans are there?
Annuity loan: The classic among real estate financing. The main features are a regular monthly loan instalment, which is made up of interest and repayment. The repayment rate increases over time, which reduces the interest component. Advantages: Constant interest rate over the entire term and very easy to plan.
Follow-up financing: If the fixed interest period expires after ten, 15 or 20 years, it is time to take care of follow-up financing for the remaining debt.
Which insurances are essential?
Term life insurance: it covers the primary breadwinner of the family.
Building insurance: It protects the new home from damage caused by fire, water, hail or storm—important addition: natural hazards insurance against heavy rain and floods.