Our guide to real estate financing

Here you will find a wealth of helpful and informative advice from our financial experts.

How does a construction financing work?

Sooner or later, every prospective property owner has to deal with construction financing. While some people plan carefully and read up on the topic months in advance, others are spontaneous and only consider it after acquiring the property. The former may want to plan long-term and view the house purchase as an investment, while the latter simply want to find their dream home first and then determine if they can afford it. Especially in big cities, an early financing inquiry is almost essential. Due to high demand, real estate agents must preselect; those who cannot show financing get no appointment at all. If you have apprehensions about this topic, we can reassure you. Real estate financing is not complicated, especially when you have a competent partner like us by your side.

What is your budget range?

First, you need to assess the funds available to you. For this, list all your incomes and deduct your monthly expenses. The calculated value represents your maximum budget range. The second component is your equity. The more equity you can bring in, the better the conditions of your financing will be. A real estate financing without any equity is only possible in exceptional cases.

To gain a more neutral perspective on your financial situation, consulting with an advisor can be beneficial. They may view your expenses more critically than you and help to factor in unforeseen events. With their experience, they can prevent unpleasant surprises during the term of the financing.

How do you find the right property?

No matter how you approach the property purchase, without an object, there can be no construction financing. For the bank, the property represents security. The better they value the property, the better the credit conditions will be. There are countless ways to find a suitable property. The relevant portals such as Immobilienscout or Immonet offer properties online, and many real estate companies now market their properties in this way as well. Especially in big cities, having a good private network or contacts with good real estate agents can make the search easier. In general, the more avenues you explore in your property search, the more likely you are to find a suitable object.

Project Development with a Financing Expert

Once you have found a suitable property, your individual financing concept will be created. The financing advisor will review your financial concept, available equity, and calculate a sustainable financing rate. However, it's not just about the numbers. Real estate financing is a long-term major project, and its implementation depends on many factors: When do you want to have the property paid off? Are special repayments foreseeable? How is your career expected to develop? Will expenses remain constant or could they increase due to children or other circumstances? All these factors influence the duration of the fixed interest period and the ideal repayment rate. Based on this information, the financing advisor will search through their network of banks and select the loan that best suits your needs and offers the lowest interest rate.

Completion of the Purchase Contract at the Notary

Once you have reached an agreement with the seller on the price, the purchase contract will be signed at the notary's office. This document serves as proof of ownership. As the bank uses the property as collateral, it will only disburse the agreed financing amount once the purchase contract is notarized. The costs for the notary must also be considered in the financial planning, as they amount to approximately two percent of the total purchase costs.

The flow of funds:

Upon completion of the land register entry, the seller of the property receives the money from the financing bank. Whether the full purchase price or only a partial amount is transferred depends on whether the property is still in the construction phase or already completed.

The notary transfers the rights of the property.

The notary is worth his fee. While the bank takes care of the financing, the notary transfers the rights to the property and the real estate. Additionally, the notary obtains and submits numerous other documents to the land registry office. It may take some time until the final registration in the land register is completed. Until then, the buyer will be noted in the land register. With the final entry in the land register, the buyer officially becomes the owner of the property.

Your Personal Financial Plan

For most homebuyers, there is often a significant difference between their dream and reality. While many would love to have a luxurious estate with a large garden and a rooftop terrace, the practicality of the situation often requires compromises. Instead of a single-family house, it might be a more affordable option to buy a condominium, and a rooftop terrace might be replaced by a regular balcony. It is essential for the buyer to set priorities and make realistic calculations based on what they can afford.

While the current rental expenses can serve as a reference point, it should not be considered the definitive value for determining affordability. Some people can comfortably afford their rent and may be able to afford a bit more for their own property. On the other hand, others need to carefully consider every penny and evaluate what features in their property are genuinely essential. It's essential to consider ongoing expenses outside of the mortgage as well, such as vacations, car repairs, or children's school trips. As a rough guideline, the mortgage should not exceed 40% of the net income. The easiest way to reduce the monthly financial burden is by having sufficient equity. The smaller the loan amount, the lower the monthly installment will be.

How much equity do you have available?

The question of equity is not as straightforward to answer as it may seem. Most people have more funds available than they initially think. Besides liquid assets in current accounts or savings accounts, other assets such as stocks, bonds, art, and even household items can be converted into equity. However, the decision to convert these assets into equity should be carefully considered on a case-by-case basis. The amount of equity required depends on individual financial circumstances. For those who already own a property and have a well-paying job, they might need only five to ten percent of their own funds. However, for those with no significant assets, it is recommended to bring in at least 20-30% of the purchase price as equity.

How to Calculate Your Financing Yourself

Experience pays off. If you engage with real estate, compare prices, and accumulate knowledge over an extended period, you will develop a good sense of the market and appropriate property prices. The same applies to financing: Use various calculators, calculate different scenarios (both positive and negative), and experiment with different loan terms, fixed interest periods, and interest rates. By doing so, you will gain a good understanding of the properties you can afford. It is advisable to include your personal financial situation realistically and consider any financial risks. A solid financial plan can help you realize your dream property within a suitable framework for you.

Finding the Right Property at the Calculated Purchase Price

Based on your calculations, you now know which properties you can afford. This makes it easier to search for the right property and shows you the compromises you may need to make. In the next step, you can start looking for the suitable property. When using online portals, you can narrow down your search based on the maximum purchase price. You can also provide specific figures to real estate agents for their search, and within your own network, you can quickly determine whether a suggested property is financially feasible for you. Having a clear understanding of your budget and financial capabilities will help you focus your search on properties that align with your financial goals and make the buying process smoother.

Obtaining Non-binding Offers

Once you have found a suitable property, you can request concrete financing offers. Use loan comparison portals for this purpose. The offered financing options can vary widely. From the specific interest and repayment rates, you can already determine the monthly loan installment and the duration. Comparison is essential when it comes to financing loans. On a comparison platform, you will not only receive a single offer from a specific bank but can choose from hundreds of loan offers. With these comparisons, you can save a significant amount of money in the long run. It is no wonder they say: Comparison makes you rich!

What funding options can you use?

The government offers numerous subsidy programs to make your property more affordable. If you have children or use the property yourself, the government can subsidize your financing. Energy-efficient renovations in line with climate protection are also supported by the federal government. Through these funding programs, you can receive grants for retirement provision, lower interest rates, get tax refunds, or benefit from the so-called "Baukindergeld" (construction child benefit). But be cautious: the wheels of bureaucracy turn slowly. There is usually a time gap between applying for the subsidy and receiving the funds. Therefore, it is essential to inform yourself about funding opportunities early on and clarify which subsidies you want to apply for.

What are the duties of the notary?

The notary has various tasks in the process of real estate acquisition, as the transfer of property is strictly regulated. The notary provides security for both the buyer and the seller since errors in the transaction could lead to financial ruin for the disadvantaged party.

During the examination by the notary, patience is required. Ownership conditions, existing lease agreements, property location, building liens, and pre-emptive rights are just some of the factors that need to be reviewed. This examination takes time, and as a result, there may be a waiting period until the entry in the land register can be completed.

What preparations need to be made for the appointment with the notary?

You must definitely have the purchase contract reviewed. It forms the basis for the later certification. Errors in the purchase contract can have drastic financial consequences. Before the appointment, make sure you are informed about all the details of the purchase contract and have your identification documents ready.

How does the appointment with the notary proceed?

It is important to listen carefully to what the notary reads aloud. If something in the purchase contract does not correspond to what was agreed upon, you must intervene immediately. If there are no objections, the purchase contract will be notarized. The deed contains the names of the buyer and seller, the location of the property, the purchase price, and any mortgage assumptions. It also includes the declaration of conveyance, conditions, and approvals.

The official transfer of ownership takes place at the moment of registration in the land register. Before this entry can be made, the land registry office requires a certificate of non-objection and a possible clearance certificate. The notary takes care of preparing and organizing these documents. When submitting the documents, a so-called entry of conveyance note (Auflassungsvormerkung) is recorded in the land register. This secures the buyer against any breaches of the contract.

How does the disbursement process work?

As mentioned in a previous section, the disbursement amount depends on the progress of the construction. If the property is already completed, the full amount will be paid out. If the property is still in the construction phase, partial sums will be disbursed, which depend on the progress of the construction project.

It is also important when the bank legally owns its security and the property is registered in the land register. Before that, no bank will make any disbursements. The duration of the land registry entry depends on some external factors but is usually four to six weeks.

How is the disbursement handled for existing properties?

In addition to the mentioned entries of securities, the maturity of the purchase price also plays a role. The contract specifies when the seller will receive their money. If this date has not been reached or no maturity notice is provided, the bank will not make the disbursement.

A temporary replacement of the entry in the land register can be made to protect the seller through a notary arrangement confirmation. This ensures that the seller is protected against longer processing times at the land registry. The notary arrangement confirmation temporarily replaces the entry of the mortgage.

Disbursements during the construction phase

When financing construction projects, the agreed loan amount is provided in installments that depend on the progress of the project. The Developer Regulation (Bauträgerverordnung) precisely regulates for which services of the developer partial sums can be requested. Below is an overview of the developer's entitlements:

For the completed shell of the building, 40% of the agreed sum must be paid out. Another ten percent becomes due for the installation of windows and glazing. The completion of the roof entitles the developer to eight percent. The remaining 42% is distributed among small individual items, which are regulated in the Developer Regulation.

The developer, through the architect or the construction company, is obliged to regularly prove to the bank how far the construction has progressed when requesting disbursements. Delays in construction or in providing the evidence can be costly. Many financing contracts stipulate that if the amount is not withdrawn at agreed time points, commitment interest becomes due. Therefore, receipts should be submitted as soon as possible after receipt.

The Completion

After the signing of the purchase contract, the buyer usually has 14 days to transfer the agreed sum. However, the period may vary. Once the money has been received, the seller must confirm the receipt to the notary. In the next step, the notary sends all necessary documents for the transfer to the land registry. With these documents, the final transfer in the land registry is completed. The last step is the completion notification. This is sent to both parties. If there are no objections, the real estate transaction is completed.