Every real estate dream needs a solid foundation. For the bank that grants you a substantial loan, this is your equity. But which assets exactly are part of it and how much of it should you have on the high edge?
The last few years have hit most Germans hard: Now that the horror of the coronavirus years has faded from people's minds, rising interest rates and higher inflation have hit people hard. As a result, the dream of home ownership has receded into the distance for many.
Not only cash is king
The first question is what is generally considered to be equity. It is not only paper money and savings parked in bank accounts, but also life insurance policies, building society savings, securities as well as real estate and building plots are all part of the notorious equity.
Determine equity ratio
Opinions are divided when it comes to how many assets you should have if you want to realize your dream of owning your own home. Banks recommend a ratio of 20-30 percent. However, less equity is also acceptable. Ultimately, the amount of money you can raise out of your own pocket for the purchase will affect the amount and conditions of the loan.
Equity as the holy grail
If you are wondering why equity leads to silent dances of joy among bankers, it can be said that equity considerably reduces the bank's risk. The lower loan amount also reduces the risk of insolvency.
Saving made easy
Many people interested in real estate are not sure how to accumulate equity. For some, the undertaking seems almost impossible. However, consistency works wonders here. Simply set aside a fixed sum month after month and you will be amazed at how much money you have accumulated after a few years.
No moss, no action
Of course, people with little to no equity can also purchase a property. However, full financing costs more and the terms are longer.
A little tip at the end
Play it safe and at least cover the ancillary purchase costs out of your own pocket. This will secure you favorable loan conditions and make you a welcome guest at banks.
Would you like to buy property or do you need advice on the options for financing your dream home? Then get in touch with us. We will be happy to advise you.
Notes
For reasons of better readability, the generic masculine is used in this text. Female and other gender identities are explicitly included where this is necessary for the statement.
Legal notice: This article does not constitute tax or legal advice in individual cases. Please consult a lawyer and/or tax advisor to clarify the facts of your specific individual case.
