Real estate loan Overview of tips, tariffs and providers!
Requirements, documents and contractual terms: How to finance your own home The low interest rates make building or buying a property attractive. Nevertheless, it is worth taking the time to find the right real estate loan – the differences between the offers are quite remarkable. Who actually writes and advises here? About us On this page Real Estate Loan Requirements Necessary Documents Preliminary Considerations for Credit Directly compare loans
Special features of real estate loans
Home finance differs in some essential points from ordinary installment loans for private individuals. In addition to the significantly higher loan amount, the term is significantly longer – at least over the entire financing period: As a rule, consumers take out a loan with terms of between ten and twenty years and then make use of follow-up financing. In the end, the total term is often 35 years or more.
Other differences in mortgage lending:
- Due to the large loan amounts, the requirements for creditworthiness and protection are extensive.
- If you cancel early within the first ten years, high fees may apply.
- The interest rate is usually lower than that of a consumer loan, since the banks use the property as collateral to reduce their risk of loss (also: default risk).
Requirements for a real estate loan
Banks carry out an extensive review of the project on real estate loans. On the one hand, they want to ensure that the borrowers are really able to repay the financing completely and in good time. On the other hand, they check to what extent the property is suitable for credit protection.
Two opposite examples In a big city where the demand for real estate is high, property values are increasing steadily – an object is easy to sell. In the event of insolvency, the bank can sell the property without any problems. In turn, in a rural region where demand is not particularly high, property prices have been falling for years. In the event of an emergency sale, the bank would have problems covering the outstanding costs with the proceeds from the property. The bank may also have to wait a long time for potential prospects for the property.
The creditworthiness check (also: creditworthiness) consists of two components.
In a first step, banks assess the level and security of income. An irrevocable official with a high income initially has a better chance of getting a real estate loan than a freelancer with a rather low and irregular income.
In a second step, bank employees look at the financial history of applicants. To do this, they use the data from credit agencies such as Credit Bureau, save payment errors and calculate a score for every registered consumer from a variety of factors. In the event of numerous payment failures (i.e.: unpaid bills), the loan application may be rejected.
Real estate as security
In the case of a real estate loan, the property is deposited with the bank as credit protection. This means that the bank can sell the property if there are persistent problems with payment in installments.
This credit protection takes place either as a mortgage or as a mortgage, with the institutions increasingly tending to mortgage.
In the mortgage, the entry in the land register depends directly on the remaining debt, it is reduced with the repayment. At the end of the repayment, the authority will automatically delete this entry.
The land charge, on the other hand, remains the same; the bank and the borrower must apply for deletion. What reads disadvantageously has a great advantage: You can fall back on the existing land charge as security when you renew your loan, which saves bureaucratic effort and notary fees. There is no risk of abuse. Institutions may only use the property if they can prove that there are no payments.
In contrast to consumer loans, you have to show equity in a real estate loan. With this you have to cover at least the additional costs of a property purchase. These include notary fees, brokerage fees and real estate transfer tax.
There are clear regional differences. One of the reasons for this is that the real estate transfer tax differs from region to region. The Bausparkasse Schwäbisch Hall puts the costs in a study from 2017 at 10 to 15% of the total costs.
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Construction projects are checked extensively by banks. When building a house, we are therefore asked to submit all existing documents such as the architectural plan and cost estimates. Documents such as the approved building application and a list of your own contributions are added.
When buying a house, the purchase contract, the prospectus and the current extract from the land register are required.
Institutes list the required documents in detail when applying for a loan. They also need documents on the current income and wealth situation. If the applicant is employed, the banks often request the following evidence:
- At least three salary certificates
- employment contract
- Last income notice
- Statement of assets (self-disclosure)
- Proof of statutory or private health insurance
Proof of income is more difficult for the self-employed due to the irregular income. You have to submit several tax assessments and, depending on the legal form, documents such as balance sheets, a business evaluation and social contracts.
Preliminary considerations for real estate financing
Before you compare real estate loans, you should make some basic decisions. This affects aspects such as fixed interest rates and special repayments. It is only on this basis that concrete loan comparisons make sense.
Duration of the fixed interest period
Borrowers often choose a fixed interest rate of between ten and twenty years: you bear the same interest burden over the entire term. You should bear in mind that banks require interest premiums for longer fixed interest periods.
This disadvantage is offset by financial security. You know exactly what burden you are burdening yourself with for fifteen or twenty years. You avoid the risk of rising interest rates, which in the worst case can lead to insolvency. Especially in periods of low interest rates there is a lot to be said for a long fixed interest rate. Borrowers often remain flexible with long fixed interest rates: After ten years, you can usually cancel the real estate loan free of charge and can switch to a cheaper offer.
Variable interest or fixed interest
Some forego fixed interest rates and take out a real estate loan with variable interest rates. The interest rate is based on key interest rates such as Lite Lender, so the banks cannot change the interest rate arbitrarily. However, if interest rates rise, borrowers feel the effects immediately. Even with small interest rate increases, you will face enormous additional costs in view of the large loan amount. For this reason, many borrowers prefer real estate loans with fixed interest rates.
In the case of special repayments, you have the right to minimize the remaining debt unscheduled. Banks usually make these special payments annually up to a certain percentage of the loan amount, for example 5%. Many institutes are calling for a slightly higher interest rate.
From the point of view of the borrowers, special repayments are worthwhile if there is a high probability of financial scope. Expect z. B. salary increases or an inheritance, you can reduce the remaining debt and the interest costs by special repayment.
Compare specific loan offers
The individual interest rate on a real estate loan depends on numerous factors such as the creditworthiness and location of the building. For this reason, banks do not specify general interest rates, instead they publish interest margins or so-called window prices. These only give you a rough orientation, the specific conditions can only be obtained with personal credit inquiries. Please feel free to use our free interest calculator above on the page.