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Buying a home in three steps – Part 2: Suitable financing

Posted by Katrin Skora on 18. September 2024
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Once you have decided to purchase a residential property, the next step for buyers is usually to choose suitable financing. This is because only very few private buyers are able to finance the property entirely out of their own pocket, i.e. solely through equity.

There are various financing providers that buyers can take advantage of. These include banks, insurance companies and state institutions. The question of financing your home should be clarified as early as possible – preferably before you sign the purchase contract. There are a few things to bear in mind. If you choose the wrong form of financing, you may incur more costs and the property may end up being more expensive than originally planned. You can find out which different loan options exist and what you should pay particular attention to here.

Which financing is the right one?

Annuity loans are the most common and most uncomplicated type of financing. Credit institutions provide a certain amount that must be repaid in predetermined installments within a fixed period of time. The installment is made up of the repayment and the interest. However, not all costs are covered by the bank loan. Incidental costs of buying a home such as land transfer tax, estate agent’s commission, notary fees, moving costs and operating costs should not be ignored. Accordingly, you should have some reserves if you are considering buying a property. Only in rare cases are ancillary purchase costs co-financed. The annuity loan is characterized by good planning security. The installments are fixed in advance and the interest is fixed for ten or fifteen years. Conversely, however, this also means that the contract cannot be changed during the term. After this period, follow-up financing must be concluded. If you would like to avoid follow-up financing, a full repayment loan is an option. In most cases, you conclude this with a longer fixed interest rate, but there is no residual debt at the end of the term. Planning security is therefore particularly high here. The fixed interest period is usually between 15 and 35 years, during which you pay the same monthly installments. Financing can also be provided in the form of bullet loans. However, this variant is usually more expensive than the annuity loan. In addition to a loan agreement, a savings contract is also concluded. During the term, only the interest is paid, so the remaining debt remains the same until the end. The advantage is that the monthly installments are much lower. This means that the money can be saved until the end of the loan. So if you are planning to sell your current home to pay off the new loan, this can be a useful alternative. This is because it is often not possible to plan the timing of the sale optimally. But be careful: if you do not have sufficient funds available at the end of the term, you may have to take out another loan.

Price comparisons for the best conditions

Buying a residential property is associated with high costs. This makes it all the more important to find the right financing for you and to estimate the associated costs well so that no financial bottlenecks occur during the repayment process. Choosing inexpensive financing is very important here. Comparisons can be made online from the comfort of your sofa. In the next step, you should inform your bank of the most favorable conditions so that you can obtain better conditions yourself if necessary. Once the financing issue has been clarified, there are only a few steps left before the purchase is completed. In the third and final part of our home purchase series, you will find important information on checking and notarizing the purchase contract.

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