Who would like to build or buy a house, should bring along for it ideally own capital funds, thus saved money or a building savings contract. After all, it is an important component of real estate financing. A rule of thumb says that you should only think about buying or building a property when you have about 20-25% of the expected costs as equity capital. Here you can learn more about the different forms of equity as well as real estate financing without equity capital.
Possible variants for equity
The so-called equity capital can be available in different forms. The classic variant is that you have saved money, which is in a savings account. Alternatively, you may have inherited a certain amount of money. In addition to these bank and savings balances, cash is also part of the equity capital. Savings bonds and building society contracts are another way to prove equity capital. The building savings contract is not very popular nowadays, but still there are many people who once got such a contract from their parents or relatives. In the meantime, there is hardly any interest left on the saved credit balance. Craftsmen still benefit, however, because in their case the employer always pays in the same amount that is deposited as well. In any case, the main purpose of the contract is to finance a property. However, you can also liquidate this without a property and have the amount paid out to you.
In addition, land that has already been paid for and construction services that have already been paid for also serve as equity capital. Likewise, you can validate life insurance, shares, mutual funds and securities.
An important rule of thumb says that you should bring at least 20%, but even better 25% of the real estate price as equity capital. Thus the loan, which you take up for the purchase probably with a bank, becomes more favorable. The loan period is also shorter and you can expect reduced interest and loan rates.
A calculation example for the equity
When you search for real estate loans at banks, you will often see information about how much equity the respective credit institution recommends. Also when searching for real estate, you will usually find directly the indication of how much equity is needed. This means that you don't need to know the full purchase price to get an idea of what you need. The average prices for German cities as well as the required start-up capital can be found on the corresponding real estate websites. For example, if you have 20.If you have saved up € 000 of your own capital, the bank would already finance an apartment with 60 m² in Frankfurt an der Oder for this amount. This calculation example assumes a price per square meter of 1.600 euros in Frankfurt an der Oder, which is equivalent to a purchase price of 96 euros for a 60 m² apartment.000 Euro corresponds.
Here are some examples of the required equity in other major German cities. Again, we assume an average apartment size of 50 to 60 m²:
- Hamburg: 51.600 euros
- Berlin: 49.200 Euro
- Bremen: 37.200 euros
- Dresden: 36.000 euros
- Frankfurt on the Main: 52.800 euros
- Munich: 78.000 euros
This makes Frankfurt an der Oder one of the cheapest cities in Germany for buying real estate. In Cottbus, Greifswald, Halle, Magdeburg and Kassel the prices are also quite manageable. In addition to the initial capital, you should have a rough idea of how much you will have to pay back to the bank each month. With an annual repayment of three percent, you will pay back about 320 euros per month for the purchase of real estate in Frankfurt an der Oder, while in Hamburg it would be 860 euros per month.
Real estate purchase without equity capital
But it is also possible to buy a property without equity capital. This is known as full financing of a third place. For this you apply for a full financing at a bank of your choice. Here the bank advances you the full amount for the purchase. This is a mortgage loan, which means that a land charge will be registered in your name. Thus, the financed object also serves as collateral for the loan. If you do not pay your installments over a longer period of time, the bank can therefore confiscate the property. Your income is also a security for the bank.
In return, as a borrower without equity, you get the advantage of implementing real estate financing as quickly as possible. In some cases, you can even secure a loan at favorable interest rates at short notice. This is particularly suitable if interest rates are approaching a low and you do not have any equity or want to use it for construction or purchase. It is thus possible to compensate for the higher burden that full financing entails with favorable interest rates. It is important for the bank that you have personal creditworthiness and a satisfactory income situation. For yourself, a manageable risk is an elementary aspect. If you belong to the occupational groups of civil servants, soldiers or judges and can therefore foresee your career and income development, this is extremely helpful in this regard. In addition, you can more easily convince the bank of your creditworthiness.
Pay for the property 100% yourself
Of course, it is also possible to pay for the property entirely from your savings or private assets. Then you do not have to worry about interest rates or credit. Many people decide after an inheritance or other financial gain to buy a second home and thus invest in the future. You generate profit through possible rental income and can also resell the property if required.
Conclusion: The more equity, the better
If you do not belong to a very well secured professional group, you should avoid real estate financing without equity capital. In this case, try to save at least 20% of the purchase price. Consider the different forms of equity and, if possible, wait until interest rates get lower. The more equity you bring, the more favorable the loan will be for you. Alternatively, you can of course pay for the property in full or in large part at the time of purchase, in order to obtain better conditions.