Financial check: What banks really want to see

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September 2022

Before buying real estate there' s the financing - What should be done?

Keep an eye out when buying real estate - this applies not only to the property itself, but above all to the financing. Thousands of euros can be saved quickly if you have the right answers to the crucial questions. The topics are many and varied. They start with the necessary documents for the lender, and range from the appropriate loan amount to the suitable financing model.

It all starts with the cash check

Have you already found an apartment and now want to get your financing off the ground? Or do you first want to see what you can afford? In both cases, the same process applies. First of all, you need to take a look at your financial situation: With a budget calculation that is as detailed as possible, you list your monthly income and expenses. For example, what do you spend on housing, food and clothing? Or on cell phones, Internet access, TV and streaming? And of course, the list must include expenses for mobility, donations and gifts, or leisure and vacation activities, as well as costs for education and training, healthcare, insurance, or current loans.

Include a safety buffer

Potential lenders also pay close attention to these details; they want to avoid financing on feet of clay. In addition to the recurring expenses mentioned above, you also have to think about annual lump sums and contributions - and also consider a safety buffer that is not too small for unexpected costs. For example, the washing machine may break down, the car may need new shock absorbers or the laptop may suddenly stop working. And by the way: New, regular costs are also incurred for the apartment you have purchased. The housing allowance includes garbage disposal, administration costs and a portion for the maintenance reserve - for an 80-square-meter apartment, you would need to calculate a total of around 200 to 240 euros per month.

Use funding pots

In addition to current income and expenses, there is the question of current assets. The more savings you have set aside, the better. Without equity capital, a property can usually only be purchased by those who can demonstrate a high and stable income. At least the ancillary purchase costs, such as land transfer tax, brokerage and notary fees must be able to be paid from one's own funds; after all, fewer and fewer banks are offering to finance these costs as well. Generally speaking, the higher the equity, the lower the bank's risk. And then the buyer also usually has to pay correspondingly less interest - so his financing becomes more favorable.

One mistake that should be avoided at all costs when financing: Thinking you know everything and can manage everything on your own. In fact, there are many good financing advisors who have great expert knowledge. For example, they know

  • all the relevant funding sources,

  • KfW offers,

  • regional subsidies,

  • and the best interest rate offers.

Seeking several offers

But beware: There are plenty of financial advisors out there - so it's best to contact several of them at once. Because their offers sometimes differ quite significantly. Firstly, in terms of the interest rate that the advisors negotiate with the lender: this means you can secure the best interest rates - with even very slight differences - you can save several thousand euros over a term of 10 years, depending on the size of the loan.

On the other hand, you can get a good overview of different financing models by approaching different advisors. In doing so, you should keep one important aspect in mind: Some advisors design complicated models with hidden, unforeseen risks. In general, the simpler and more flexible the financing, the better. For example, supposed tax-saving models often don't work out: The properties offered here are usually overpriced, include high commissions - in addition, the projected rental income may often not be realistic.

You should plan a good hour and a half for each meeting with the advisors: Then you can discuss your financial situation and your purchase project with them in detail - ideally, the advisor will immediately point out any obvious obstacles and outline the next steps. Afterwards, you will receive an offer tailored to your personal needs.

The most important documents

When it gets down to the nitty-gritty and the lender is contacted by you or your financial advisor for the first time, you need to have a number of documents ready. For example, in addition to the loan application, the banks require current salary statements, the income tax statement, income tax assessments for the past two years, and the proof of assets already mentioned. Self-employed persons must also submit other documents - these include, for example, the balance sheets or net income statements for the past few years, as well as current business management evaluations, including the list of totals and balances.

And of course: you also have to present the property accordingly. Photos, floor plans, space calculations, a cadastral map, an excerpt from the land register and a draft purchase agreement are all part of the documentation that the banks want to see. Usually, you will receive these documents directly from the real estate seller.

You see: Financing is not rocket science; however, you have to be prepared very well and get the right information.

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