Discovering the suitable mortgage: A simplified process in four vital stages.
Buying real estate often means a lifelong commitment. To ensure that the construction loan doesn't become a burden, you should pay attention to several factors.
The construction loan for your real estate sticks with you for decades. That's why it's crucial to set the right course from the start, to ensure hassle-free repayment. It's not just about interest and repayment rates, but other factors also play a significant role in repayment and comfort. Here are some aspects you should consider when searching for a suitable real estate loan:
- Assess Your Budget
"First things first," advises financial expert Roland Stecher at the Consumer Center Bremen. "Decide what type of property you want - a house or an apartment? New or used? What can you really afford?"
Many builders tend to overlook their financial situation. They get captivated by a property without checking if it fits their budget. "Someone who doesn't know what they can afford, may end up in the wrong real estate offers, looking in the 500,000-Euro class, although their financial framework only allows for 300,000 Euro," says Florian Becker, managing director of the Homeowner Protection League.
It's important to conduct an honest budget check to determine a realistic loan amount. Compare all income and expenses, as well as equity and future income sources such as life insurance or inheritance. Online real estate financing calculators, such as those from Interhyp, Dr. Klein, or Check24, can help with this and provide a good initial overview.
"Credit rates should not exceed more than 30 percent of monthly net income," says Roland Stecher. Banks might aim for 40 or even 45 percent, but he warns caution: "It's better not to finance too heavily. After all, one also wants to live and go on vacation, not pour every cent into real estate financing."
- Seek Advice from Independent Advisors
"Consulting with an independent financial expert provides added security," says Florian Becker. "He is usually familiar with the ups and downs of life and knows how to factor them into the loan agreement."
For example, Frank Lösche, a real estate financing expert at Dr. Klein in Hamburg, suggests that a young family with a child should not only look at interest rates, but also pay attention to the flexibility of repayment rates. So, if a second child comes, and the family income temporarily decreases, the repayment rate can be reduced. As the income improves, the repayment rate can be increased again, helping to pay off the loan faster and avoid high interest payments for many years. "But not all banks offer repayment adjustment options," says Lösche. "You need to make a suitable selection."
- Start Your Research at the Building Society
Most buyers and builders start their real estate financing journey at their own building society. "That's where you get your first offer," says Roland Stechter. To compare conditions with those of other banks, use the same criteria. "The loan amount, effective annual interest rate, repayment rate, and financing term are the basics," so Stechter.
"In addition, come the duration of interest capitalization - we recommend 15 to 20 years -, a special repayment right, and the possibility of flexibly changing the repayment rate," says Stechter. With these details, you can find the right real estate financing.
If the construction of a property is delayed and the loan cannot be repaid at the agreed time, the bank charges provisioning interest. Customers should consider this during contract negotiations. "Builders should aim to avoid high costs and negotiate for as long a provisioning interest-free period as possible," advises Florian Becker.
- Secure Agreed Conditions with the Contract Signature
Once the contract with the bank is ready to be signed, don't delay signing for too long. "In it, a fixed interest rate is agreed. If not signed promptly, a good interest rate may change," says Becker. However, securing favorable conditions over a longer period, as is the case with a forward loan in supplementary financing of an annexed property, is not possible for a first loan, according to Becker.
However, Stecher advises against rushing things. "In general, it holds: First, get the notary's signature, then sign the contract with the bank."
Read also:
- Consumers seeking real estate loans should consider working with independent financial advisors, as they can provide valuable insights into factors such as repayment flexibility, which can be particularly beneficial for families with changing income circumstances.
- Banks often offer real estate loans with repayment rates that exceed 30% of monthly net income, but it's important for borrowers to be cautious and not finance too heavily, as this can leave less room for other expenses and enjoyment.
- When comparing real estate loan offers from different banks, consumers should consider factors such as interest rates, repayment rates, financing terms, and the possibility of flexibility in repayment rates, as well as the duration of interest capitalization and the existence of a special repayment right.
- The European Central Bank (ECB) plays a role in setting the interest rates for real estate loans, and its actions can impact the overall cost of borrowing for consumers seeking to finance the purchase of real estate.
