When buying a property, one of the most crucial questions is: how much equity do you need to be able to realize the purchase at all? The right equity ratio not only influences the conditions of your financing, but can also decide whether the dream of owning a home becomes reality at all.
Equity comprises the financial resources that you have saved to invest in the purchase of a property. Banks generally require that part of the purchase price and any incidental costs such as land transfer tax, notary fees and estate agent commission are covered by this capital. As a general rule, the higher the equity share, the more favorable the financing conditions and the better the chances of obtaining a loan.
How much equity should you plan for the purchase of a property?
It is recommended that you finance at least 20 to 30 percent of the purchase price of a property from your equity. With equity of 500,000 euros, this means you could purchase a property worth around 1.67 to 2.5 million euros without unnecessarily increasing the financing costs. In addition, this equity should cover the ancillary purchase costs, which typically amount to 10 to 15 percent of the purchase price.
Here is an adjusted example calculation for a property with a purchase price of 500,000 euros:
Purchase price of the property: 500,000 euros
Ancillary costs (10 %): 50,000 euros
Total costs: 550,000 euros
Equity (20 %): 110,000 euros
The equity of 110,000 euros is transferred directly to the seller. This reduces the amount that needs to be financed by the bank to cover the remaining costs.
How high can the price of my future property be?
When financing, it is important that the monthly loan repayment installment does not exceed 35 percent of your net household income. To find out how much you can afford for a property, carry out a budget calculation by comparing your fixed costs with your net monthly income.
What room for negotiation do I currently have when buying real estate?
Buyers can currently benefit from favorable conditions. Many potential property buyers are more cautious, which means that sellers are taking longer to sell their properties. This offers prospective buyers the opportunity to disclose their financial limits and thus possibly obtain better conditions. However, in order not to weaken your own negotiating position, it is advisable to be accompanied by an experienced real estate professional who has the necessary negotiating skills and can communicate effectively with sellers.
Do you need help buying or financing a property? Please contact us! We will be happy to advise you.
Note
For reasons of better readability, the generic masculine is used in this text. Female and other gender identities are explicitly included where this is necessary for the statement.
Legal notice: This article does not constitute tax or legal advice in individual cases. Please consult a lawyer and/or tax advisor to clarify the facts of your specific individual case.
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