Finally moving into your own four walls, no longer paying rent, creating a secure old-age provision, … – there are many good reasons for dreaming of your own home. Whether and when it will come true depends above all on one essential requirement: a certain amount of equity. In this article we explain how high this should be and why the building financing of a prefabricated house is best possible with low equity.
Secure construction financing: Beware of full financing offers
Rising rents, falling pensions and low interest rates are currently making buying or building your own home particularly attractive. But that requires a significant financial outlay. Young families in particular have often not yet been able to build up the necessary reserves for secure construction financing. More and more providers are therefore wooing their potential customers with full financing that covers the entire purchase or construction price – sometimes even with additional costs.
There are risks involved in mortgage lending with little or no equity
Most banks raise the interest on the loan significantly if the equity is less than 20% of the total costs. In addition, builders with little or no equity should have a sufficiently high monthly income to be able to repay the building loan as quickly as possible. You should be careful if the remaining debts are still relatively high after the end of the first term of the fixed interest rate – i.e. the period in which the agreed monthly interest payable cannot vary. In this case, a necessary follow-up financing due to an increased fixed interest rate can become a significant burden for the financing plan of the builder. In general, in times of low interest rates, builders should rely on a long fixed interest rate and also take into account new furniture and unforeseen costs when considering the loan amount, since follow-up financing with a possibly higher interest rate is ultimately the more expensive alternative. We have summarized all credit models in one article for you.
How high it has to be: rule of thumb to calculate the necessary equity
The lower limit applies: the buyer or builder must be able to cover at least the incidental acquisition costs with their own capital. These additional costs are made up of the real estate transfer tax (3.5% – 6%, depending on the state), the notary fees (2%) and the real estate agent’s commission (3.57% – 5.95%, depending on the agent). As a rule of thumb, 5-15% of the total costs for secure construction financing should be raised by the builder. Ideally, the builders have already saved 20-30% of the total costs, since most banks offer cheaper interest rates in this case due to the low risk. In principle, the amount of equity required always depends on the general financial situation of the client. If you have a high monthly income, you can also manage the construction financing with less equity because you can pay off the loan faster with higher monthly installments. Calculate whether you can afford a property at all.
Advantage of the prefabricated house: lower equity requirements
A prefabricated house has some significant advantages in terms of equity. Compared to a solid house, it has a significantly shorter construction time. Consequently, the period of the double burden of rent and building interest is also shorter. In addition, the shorter construction phase results in a lower commitment interest burden, since the loan is paid off more quickly. Compared to the option of buying an existing property, a prefabricated house can also score in terms of equity requirements: because the ancillary acquisition costs, which as listed above account for up to 14% of the purchase price, only apply to the purchased property with a prefabricated house , less equity is required here. You can read more information about prefabricated house prices here.
If you want to live the dream of owning your own home despite low equity, but rule out risky full financing offers that quickly lead to a rude awakening, you should consider building a prefabricated house. Because that can be financed with relatively little equity due to the shorter double burden and the lower ancillary acquisition costs. Prefabricated houses offer a sensible option, especially for young people who have not yet had the opportunity to save large sums of money.