Question of finances

Who fulfills itself the dream of the own real estate, needs almost always a financing, must thus to the bank. Therefore applies: A good planning in the apron is the A and O, in order to prevent that one takes over oneself financially. Because, as with any financing, dangers can also lurk in a construction loan. "On the one hand, this can mean trusting the wrong loan broker or not paying proper attention to the conditions and thus taking out a construction loan that is far too expensive," warns Florian Haas from the Schutzgemeinschaft für Baufinanzierende e.V. This organization checks the construction financing of its member companies and builders for feasibility and quality. A certificate then confirms the quality and reliability of the tested construction loans. So Haas knows what he's talking about when he advises future builders or property owners to look carefully at their financing, for example when it comes to the interest rate on their loan.

"What is indicated in the loan offer?? Five percent interest or five percent effective annual interest rate? With the former indication one can assume that some points were not calculated into the interest and one would like to gloss over the actual interest rate. This will be quite a bit higher than the stated interest rate," explains Florian Haas. Wrong calculation of the effective interest rates are a kind of classic, knows the financial expert. The specifications for calculating the effective interest rate currently stipulate that the effective annual interest rate must be stated not only for the period for which the interest rate is fixed, but for the entire term of the loan. But no one knows exactly what interest rates will look like after the fixed-interest period has expired, and that makes it difficult to compare interest rates from different providers.

Hidden costs
In addition, according to Florian Haas, in the offers for loans administrative costs, processing costs and the commission for the agent of the loan can be missing, as well as compound interest. "If you add these important points yourself, the result is a very different interest rate than the bait rate. And straight humans, who are inexperienced in the range of the credits and loans, run here often danger of falling for such, allegedly very good, offer , warn Verbandvorstand Haas: A credit, with which no effective annual interest or effective annual interest rate is indicated, should not be considered at all for the building financing loan. It could be very well that this is then not the only hook with this credit."Generally Florian Haas advises to the caution: Often building financings are converted fast, a examination of the plausibility takes place mostly only with the operability of the rates. Whether the financing amount is sufficient or not, the banks often do not check."If the subject of insurance comes up during a consultation, Haas also recommends a skeptical attitude, since the offer should serve to protect oneself and not just be a welcome additional business for a financial group.

Calculate cautiously
The current low interest rates are tempting, but Haas warns against getting carried away: "If the interest rates are not fixed long enough and the lowest repayment rate is selected, a time bomb is ticking."In addition, high fees such as closing costs are often added to the agreed interest rate and the loan amount is calculated too low, reports Florian Haas: "If a refinancing is due, it can then be really expensive."Is the own building project or the real estate purchase thus an incalculable risk?? At least if you follow some simple rules, you can stay on the safe side as far as possible. For example, the following applies to construction financing: as much of your own money as possible, as little borrowed money as necessary. Because with the height of the mortgage loan also the financial obligations from interest and repayment rise.

A building loan in the amount of 200.000 euro causes at present with 4,0 per cent interest and 1,5 per cent annual repayment a monthly load of well 900 euro. If a builder brings in 50.000 euros of his own money, so that the loan is reduced to 150.000 euro sinks, results in a monthly load of scarcely 700 euro. After all, that's about 200 euros less per month, and almost 2.500 euros per year. In an emergency, this can be a decisive saving, for example in the event of unemployment. Because despite reduced incomes there is then still sufficient air to pay off the building loan. Builders who do not have this leeway are threatened with foreclosure. This is because the bank will try to avoid its own losses through an auction.

Keeping track of construction and costs
So the first thing to do is to take stock of the cash situation and ask questions about your own savings: How much disposable wealth do I have and how much of it can I use as equity to finance my new home?? The answers to this question can be determined quite easily, as Florian Haas knows: "Basically, only three pieces of information are required: the type of asset, its value on a specific date, and an answer to the question of whether the asset can be called up in the blink of an eye and without any loss of value."Especially the last point is important. Who cancels, for example, a life insurance and this even in the early years , may get back much less money than he originally paid in. "Better alternatives are either to make that policy non-contributory, as the technical term goes, or to lend on it and thus integrate it into the financing strategy," advises Haas.

One should not bring its entire capital as a builder meanwhile into the financing. Three to five net monthly salaries, preferably quickly available in a call money account, should be kept in reserve in case expenses that have not been calculated for become necessary. A sustainable financing is therefore composed of solid reserves and sufficient start-up capital. There's no getting around the latter point anyway, partly because of bank constraints. Almost no institution grants mortgage loans to builders who have little or no equity capital. This is where the experience from the U.S. has left its mark. "Because of the financial crisis, institutions are much more reluctant to grant risky loans. They also have to hold more equity than before," explains Florian Haas.

In most cases, therefore, at least ten to 15 percent of the cost must be available on the part of the borrower. But rather it should be twenty, better still thirty percent. "This is a very good buffer in case the builder and his family have to survive temporary financial lean times," explains financing expert Florian Haas. Such exceptional financial situations hit builders quickly and with full force, for example if the main earner becomes unemployed and is therefore dependent on state support. Prolonged illness also quickly causes financial problems. This is because the employer's sick pay only lasts for six weeks, after which there is a noticeably lower level of sick pay. The implications are far more serious in the event of occupational disability or even the sudden death of the primary earner.

Plan conservatively
German financing habits create a certain form of security. Traditionally, real estate here is financed conservatively, i.e. cautiously. Mortgage loans usually have a contractually agreed, fixed interest rate for a longer period of between five and twenty years. During this so-called fixed-interest period, you have calculation security as a borrower, because the loan will not become more expensive if interest rates on the capital markets rise.

In view of the various uncertainties, it is best for developers and real estate buyers to adopt a cautious strategy with a balanced mix of financial reserves and freely available capital. This is the best compromise on the way to a favorable financing that will last even in case of unforeseen events. One should not succumb to the temptations of the at present favorable interest for financing credits, as long as the necessary capital is not yet in the house cash. "Then better to wait a few more years and live in a rental before embarking on a financial adventure," warns Florian Haas.

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