Which phone should I buy around 40k
How much equity do I need to buy an apartment?
How much equity do I need to buy an apartment? Nobody can give you a general answer to this question, not even your bank. You will only find out there whether your capital is sufficient once your overall personal situation has been examined. To be precise, even later, namely when you have decided on a specific property. Banks are interested in the credit risk and decide on real estate financing based on a risk assessment. Your available resources are only one factor in this. Sometimes banks even finance the purchase of a property without such funds, sometimes 40 percent is not enough.
A common misconception
A common mistake not only among property buyers, but also among car buyers, for example, is this: If I bring in enough equity and the value of the apartment or car is definitely higher than my debts, the bank will not take any risk! The banks see it differently, they are sometimes even forced by regulatory requirements to see it differently. If the credit bursts and the deposited security has to be liquidated, from the banks' point of view the loss has occurred. Even if the bank is able to collect all of its outstanding receivables through foreclosure, it only regards this as damage limitation. At least in the private customer business, no bank in Germany will approve financing if it is not very likely that it will proceed normally.
When is it better to rent?
Buying a property is not always advisable, in some cases renting an apartment is the better choice for personal reasons. This is the case, for example, if you want or have to remain flexible and mobile for professional reasons. In other cases, financial uncertainties speak against long-term real estate financing. In the first place, of course, are uncertainties about future income developments. But potential maintenance obligations towards children or the partner also harbor risks if the partner's income situation changes. The precautionary measures in the event of a longer illness should also be checked. In the negotiations with the bank, the self-employed and freelancers in particular will have to explain how they can bridge such a financial lean period.
Can you do without your own money?
100 percent financing is sometimes possible with a good and secure income situation, but it is rather the exception. Cases in which banks even finance the ancillary costs of buying a property are even rarer, which in fact amounts to a 120 percent financing. The core problem is that the monthly burden on such a mortgage increases disproportionately. Not only is the amount to be repaid higher, but also the interest. In such cases, these include a risk premium. As a rule, a very high and very secure income is required.
How do the banks calculate?
If you buy a property and want to finance it to more than about 80 percent, banks charge very high interest for the part that goes beyond this. These are not obvious because only the APR is shown for the total loan. Internally, this interest rate is roughly composed of market interest rates for the first 80 percent and interest rates of more than seven percent for the rest. In relation to the entire mortgage, that sounds less dramatic at first: For 100 percent financing, you have to factor in an interest surcharge of between half a percent and one percent compared to an 80 percent financing. For a loan of 200,000 euros, this means additional interest between 1000 and 2000 euros in the first year alone. Over the years, a lot comes together in this way!
What additional costs do you have to consider when buying a property?
Even though in individual cases even the ancillary costs of the purchase can be financed, you should at least be able to bear the ancillary costs from your own resources. These are made up of
- Brokerage costs
- Notary fees
- Additional costs of the mortgage
- Real estate transfer tax
- Cost of the entry in the land register
In total, you should calculate around 20 percent of the purchase price for this. Of course, when making the calculation, you must not forget that there are also considerable relocation costs when you buy an apartment. Of course, this only applies if you want to use the apartment yourself and do not purchase it as a capital investment.
What are the running costs?
Even if you live in a condominium, there are other regular costs in addition to interest and repayment of the mortgage:
- The usual energy and ancillary costs continue to run
- The owners have to set up a repair reserve
- You need private provisions for minor repairs within the apartment
- Usually there are costs for an administrator
- A property tax is levied annually
- There may be development costs for road works
It sometimes proves to be problematic that repair and renovation costs as well as development costs can often not be planned in the long term. Your personal budget should therefore not be sewn too tightly and leave you certain leeway.
When is the right time to buy an apartment?
You are probably well advised to make this decision primarily dependent on personal considerations, i.e. on your private and professional situation. If both of these allow long-term planning, the time has come to move into your own four walls. It is highly questionable whether you really benefit from predicting the future development of property prices and thus choosing a particularly favorable time to buy. From a pragmatic point of view, however, the fact that the search usually takes longer anyway and it is rather unlikely to find a suitable place to stay at the supposedly right moment speaks against it.
And what about real estate as an investment?
The question of when to buy is a completely new one. Firstly, no aspects of private life are in the foreground, which are usually much more important than slight price fluctuations in the future. Second, it is much more likely to find some kind of investment property at the supposedly right time in the short term than a new home that meets your personal expectations.
What should you watch out for when buying?
You know best yourself whether you like the condominium and its location when you buy an apartment. Sometimes, however, there are disruptive factors in the area that you may miss out on simply because the owner has cleverly chosen the viewing date. For example, noise pollution from truck traffic or even air traffic is conceivable. It is also conceivable that measures are already fixed in the municipal development plans that will result in high development costs. Neither the owner nor the notary is obliged to point this out to you. You must make the relevant inquiries yourself.
A double conclusion
Conclusion # 1:
Home financiers' capital requirements are less stringent today than they were perhaps 20 years ago. The old rule of thumb that you have to pay at least the ancillary costs and 20 percent of the purchase price yourself no longer applies in this strictness. If your personal requirements are right, you can often buy an apartment with significantly less equity. This is partly due to the fact that competition among financial service providers has become much stronger and private customers also have internet access to foreign providers. In the past, the rejected customer saved up equity for a little longer, today he is migrating to the competition. Banks would like to avoid that.
Conclusion # 2:
Regardless of this, the question to be answered is whether you actually want to use the financing options with less of your own capital. There are two things to consider here. First, the monthly charges increase disproportionately to the loan volume, because the interest rates for such financing are also higher. Second, as an owner, you are much more likely to face unplanned major expenses than a tenant. It is no coincidence that the risk premium that banks charge for such mortgages is called the risk premium!
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