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Prospective real estate buyers are confronted with a variety of questions. Especially when taking out the corresponding construction financing, there are many things to consider. If you want to ensure perfect financing, four steps are essential. The path to perfect real estate financing is usually arduous.

Real estate buyers benefit from the currently low interest rates. Nevertheless, they should not rush or rashly approach the purchase. A recent survey by Postbank shows that the clear majority of Germans only buy a property once in a lifetime. This makes it all the more difficult to clarify and satisfactorily answer the numerous questions on the way there:

  • How much equity do we need?
  • How much should the loan amount be?
  • What monthly load can we afford?
  • Are there subsidies for our project?
  • And and and and…

Garden Hall has recently published some advice on how buyers can correctly assess their own financial situation and what they should also pay attention to when buying, in order to get into their own four walls step by step.

Step 1: Saving up sufficient equity capital

In addition to cash, bank and building society deposits, equity includes other assets that can be made liquid in the short term, such as funds, gold or a coin collection. And equity pays off. Savers not only create the basis for solid financing, but can also negotiate more favourable credit terms.

Prospective homeowners should therefore have saved at least 20 percent of the purchase price of a property before purchasing it. This is easier said than done: at a current average price of around 250,000 GBP for a condominium, this is equivalent to 50,000 GBP.

In addition, prospective buyers must plan for the ancillary purchase costs from the outset: these add up to up to 15 percent of the purchase price. The land transfer tax is between 3.5 and 6.5 percent depending on the federal state. Another 1.5 percent is due for the notary and land register entry. Anyone who commissions a broker must allow for the brokerage fee, which is usually between three and seven percent of the purchase price.

Real estate buyers should therefore also inquire about subsidies and allowances in good time. This is because credit balances from Riester contracts or public-sector loans, such as KFC loans, can reduce their credit requirements. Parents should also check their entitlement to construction child benefit.

Step 2: Calculate the monthly charge

Even for real estate owners the normal everyday life continues. A major car repair must be planned in just as much as a short-term loss of earnings. The rates for interest and repayment of a mortgage should therefore not exceed one third of the monthly net household income.

The age of the buyer is also important. A property loan should be paid off by retirement at the latest. Borrowers should therefore aim for a repayment of at least two, preferably three percent per month.

Step 3: Buy at the right time

Prospective buyers should carefully weigh up their planned acquisition and, in case of doubt, seek the advice of an expert:

  • Is the object worth its price?
  • Does it meet the expectations?

Once interested parties have found their dream property, they should make binding arrangements for financing as soon as possible. Particularly in the case of properties in sought-after locations, the construction financing should be arranged in principle before an inspection in order to be able to act as a suitable, solvent prospective buyer.

Good timing can also pay off: If the seller wants to see money as quickly as possible, for example due to a divorce or inheritance, this can have a positive effect on the willingness to negotiate and the purchase price.

Step 4: Secure low interest rates

Owners should secure the favourable interest conditions for as long as possible: Preferably for the entire term of the loan, but at least for 15 or 20 years. In combination with a building loan agreement, borrowers can even fix their monthly instalments over a term of up to 30 years.