The interest rates are lower than ever before – because the dream of building a house for many people seems achievable. Who wants to finance his house without any equity, should think carefully: While there are reasons that speak against a house without equity, resulting from this possibility of real estate financing also some advantages. Tips for buying your own home or other real estate can be found in our guide.
Good reasons to buy a home without equity
If you have a secure job with a high income, then a house construction or home purchase without equity can be worthwhile. For the banks, this full financing involves a risk that they like to pay with higher interest rates. For this reason, banks prefer those customers who have a fairly high and above all secure income . Young families can be happy borrowers even without significant reserves for banks – the good and secure earnings must be proven.
The easiest way is to fully finance the construction of the house for civil servants, who work in the higher or in the higher service and thus are practically not terminable. Freelancers or self-employed people with fluctuating sales have a harder time obtaining a loan for home construction without equity. With a loan for the self-employed and freelancers, however, they also have the opportunity to finance their own home.
Standard salaried employees usually get a home loan loan at the end of the probationary period. There are lenders who still differentiate between freelancers and tradespeople: Freelancers include doctors and lawyers who have a good chance of obtaining a mortgage loan. By comparison, traders find it more difficult to obtain a home or business home loan. You have to pay a higher risk premium. As a general rule, full financing should not exceed 8 times the annual net income .
Buy house without equity: the pros and cons
If you want to build a house without appreciable equity capital, the current low interest rate phase offers itself: Almost all banks offer cheap loans for construction financing. However, if you want to save your own capital, you will receive few interest. Experts warn that those who have to make a short calculation can thwart all plans and financings in the event of an unforeseen event. If there are health or professional changes, private insolvency threatens quickly.
When buying a home without equity, not only is the interest rate on the loan higher, but its term is longer . If you have equity, you need a lower loan amount and have paid your house faster.
Tip: Every mortgage loan and every renovation loan should be done with the help of professional advice. With the large number of different offers a comparison of the loans is not easy. However, if you want to have your savings despite buying a house, you can also choose a full financing of the home purchase. If the main earner becomes unemployed or sick, he can pay the monthly installments for the loan out of his savings. The same applies if the washing machine or the car has to be replaced. Without any reserve, buying a home without equity makes such an acquisition almost impossible and plunges the entire family into financial difficulties.
Home purchase without equity: the process
For the purchase of a home without equity, the same rules apply initially as for equity financing with equity. Anyone who takes out a loan should use the low interest rates and link them with the longest possible fixed interest rates and high repayments . However, at the end of the fixed interest period, the residual debt is still high. Expects the future builder a donation or inheritance, can make special repayments and minimize the debt in house financing.
Compare the offers of house financing well together
As with any borrowing, full credit requires a careful comparison of the different loan offerings. Special attention should be paid by the future client to the effective interest rate and the residual debt left over at the end of the interest formation period. If the client calculates when borrowing and can not raise the installments for the property, there is the risk of a later emergency sale. He usually achieves a much too low price and, in addition, still sits on his debts. Those who conscientiously and carefully plan their home financing carefully avoid such situations when buying a home.
Note additional costs when buying a home without equity
Homeowners without equity should remember when building finance, that not only the construction costs, but all incidental costs must be covered. Mortgage lenders and banks recommend in such a case to a loan that covers up to 120 percent of the construction sum . Thus, the ancillary costs such as land transfer taxes, fees for the notary and brokerage commissions and insurance pay.
What additional costs are incurred when building a house?
Already before the actual house construction the first costs are to be paid: that applies for example for the real estate transfer tax and the building permit. Anyone who buys a property pays notary and land registry costs. Before construction, the property must be inspected and measured. In the case of prefabricated houses, ancillary costs must also be taken into account: If the construction of a road for material transport is necessary, these costs must be borne in addition to the construction contract.
During the construction phase a good insurance is mandatory . These include the construction insurance and the builders liability. In the shell construction phase, the house is connected to all lines: This also causes additional costs. If you do not keep track of the additional costs, you will already be stumbling in financially before moving in. Especially if he has no equity or money reserve.
House financing with and without equity: a comparison
House financing without equity:
Suppose the price of the house is cheap 200,000 euros. With an average of 15 percent additional costs come to another 30,000 euros. Those who have no equity capital for the home purchase must finance at least the 200,000 euros as a loan and pay a loan interest of 3 percent. With a ten-year fixed interest rate and an annual repayment of 3.5 percent, the monthly installment for the house is 1,083 euros . After ten years, there are still 118,531 euros left over.
House financing with equity:
If the future developer has equity of more than 50,000 euros, he will receive from the bank a loan with a lower interest rate of 2 percent. Of this, he pays 2.5 percent a year and pays 563 euros a month . After ten years, when the fixed interest period expires, he still has 108,458 euros debt. If a relatively high repayment is chosen, the residual debt at the end of the interest rate period is similarly high. However, the higher interest rates and the higher repayment lead to an equally higher monthly burden.
Sufficient credit with a subordinated loan
A subordinated loan opens up a possibility to finance more than 100 percent of the house price without equity . There are special banks that specialize in these financings and complement the offer of a classic loan. While most of the mortgage lending is mortgaged by the bank, a third provider grants another loan on the open balance. Since the bank or savings bank already uses the property as collateral for the loan, the second loan can not be secured with the property.
If the borrower is insolvent, the bank can first assert its claims – and then only the specialist provider. That is why this form of loan is called subordinated loan. Thus, the loan for the bank is more risky and can be compared to a normal installment or consumer loan. Nevertheless, in this case: For the subordinated loan, the bank demands significantly more interest because its risk is greater. Who wants to take a subordinated loan, should see this as a last resort. After all, there is also the risk of personal bankruptcy here.
A guarantor can provide extra security
Those lucky enough to have solvent parents or siblings can secure their financial support. This can be done in the form of a personal loan, but also facilitates financing for home construction without equity. For the bank, a guarantee means greater security. Basically, the guarantee is possible, but who as a private person vouches for another loan, should know what he gets involved. If a house construction without equity capital is to be financed by credit, it can be secured with three different guarantees:
- deficiency guarantee
- Responsible guarantee
- bankruptcy guarantee with confiscation.
For the guarantor, the deficiency guarantee means a high level of security. Although he has to get along for the debtor in an emergency, but first the creditor must proceed unsuccessfully against this. If a guarantor takes over the guarantor’s guarantee or single-currency suretyship with plea of forgiveness, the bank can turn directly to the guarantor. The detour via the borrower is waived. Those who only want to provide a guarantee for part of the mortgage lending should therefore not afford an unlimited guarantee. The limitation on guarantee amount and term is advisable.
The prerequisite for a house construction without equity
When building a home without equity, the developer must first find a bank that is willing to buy a mortgage. However, not all banks offer such financing. This applies above all to the banks, which offer particularly favorable conditions for real estate financing. Experts recommend that you pay at least the additional costs yourself. To ensure that the residual debt is not exorbitantly high after the end of the fixed interest period, the repayment rate should be at least three percent . Then the monthly rates are much lower later.
Tip: Debt-free in the home purchase
Who wants to finance his house without equity from the bank, should have no further debts: Each bank will convince itself before granting a credit on the creditworthiness of the applicant. If an ongoing installment loan is registered with the Schutzgemeinschaft für allgemeine Kreditsicherung (Schufa), this should not be too high. For the borrower, it is not worthwhile in the long term to better represent the financial situation than it really is. As a general rule, the burden of a loan and mortgage lending should not exceed 40 percent of net income .
Whether to buy or build a house: use the promotion by the state
Although government building subsidies are low, they should be used. Above all, if he wants to handle his home purchase without equity. Low-interest loans can be obtained from KYC Bank and can be used when buying a home. Anyone who builds their house with particular energy and environmental awareness will also receive corresponding subsidies.
However, there is a catch: All KYC loans can only be requested and processed through a bank. Most banks like to lend out KYC loans, some even use the higher margin and further improve KYC Bank’s favorable terms. Private developers also receive support in some states and grant favorable loans for building houses.
Conclusion: A financing without equity is feasible if the framework conditions are right
If your own income is secure and sufficiently high, building a house without equity capital can be financed. Finally, with such funding, monthly payments are much higher due to the interest and repayment installments. Who is still in the probationary period or has only a fixed-term contract, should first buy a house without equity, if the income is secured in the long term.