Mortgage Guide MEIN FINANZKONZEPT

Mortgage guide from Berlin

In our mortgage advisor you will find many interesting articles

with important information on the subject of construction financing and real estate financing.

KfW promotional loans for your real estate financing 

The Kreditanstalt für Wiederaufbau is a state development bank that offers, among other things, low-interest development loans for real estate property. I will help you find the KfW funding programme that is right for you for your dream property. KfW promotes owner-occupied residential property, energy-efficient new construction projects or energy-efficient refurbishment measures. Not only the interest rates can be very attractive, but also the repayment subsidies for particularly environmentally friendly construction methods. KfW offers comprehensible product descriptions and daily updated interest rates for promotional loans on its homepage. KfW has changed its promotional offers as of 1 July 2021 and consolidated the programmes for energy-efficient residential buildings into three programmes (BEG 261, 262, BEG 461). The promotional programmes "KfW Home Ownership Programme" and "KfW Conversion for the Elderly" will remain in place. 

The main innovations of the KfW BEG programmes include:

  • Application before conclusion of supply and service contracts (e.g. purchase contract for an ETW or construction contract for the new construction of an EfH) via the financing partner. 

    Investment grant BEG 461 (cashback) or loan variant BEG 261, 262 (repayment grant)

  • "Renewable Energy (EE)" or "Sustainability Package" increase the funding amount to EUR 150,000 and thus also increase the repayment subsidy

  • Mandatory involvement of an energy efficiency expert and additional funding possible (repayment subsidy of max. TEUR 5)  

  • Repayment subsidy of up to 50 % for complete renovation to an efficiency house (efficiency house standard 40)

  • Funding rate of 20 % - 45 % for individual renovation measures 

How much equity do you need for your real estate financing? 

Equity is the anchor of any real estate financing. The more of one's own money buyers, builders or investors can use in a real estate project, the lower the loan and the monthly burden. Banks also reward the lower risk with lower interest rates. On the other hand, significant interest surcharges are due for high loan-to-value ratios and low equity. At the same time, the risk for the follow-up financing in 10 or 15 years increases, when possibly significantly higher interest rates are demanded and the loan instalment could increase as a result. Financing without equity is nevertheless possible, but should be well thought out and calculated in advance. Borrowers with, for example, a higher household income are better suited for this than borrowers already in debt. Please always bear in mind that you repay a construction loan to the bank over a long period of time and that the monthly loan instalments can only be changed in exceptional cases. Common sense should always be your good companion in this. My recommendation is that you pay at least the ancillary purchase costs (broker's commission, land transfer tax, notary & court costs) out of your own capital. 

Plan follow-up financing in good time with a forward loan 

In the credit business, follow-up financing is the agreement of a new credit interest rate within the entire loan term at the end of the fixed-interest period provided for in the credit contract. This does not change the original loan term, but leaves it in place. If interest rates are low and the existing fixed-interest period of your construction financing expires in the next 60 months or sooner, then you should think about what will happen to your construction financing after your fixed-interest period expires. Professional and competent advice is also advisable and even unavoidable here. When is the right time for a forward loan? What influence will the current interest rate level have on my mortgage in five or four years? What does the special right of termination under § 489 BGB mean? What if you do not apply for follow-up financing? What does rollover mean in connection with your property financing? I will take time for you and explain comprehensively which path may be the right one for you. My mortgage calculator will give you an initial interest rate indication for your forward loan - why not give it a try? 

The right fixed interest rate for your construction financing 

In real estate financing, the fixed interest rate period refers to a period of time during which the interest rate conditions for your real estate loan are guaranteed to remain the same. This interest rate guarantee therefore affects the lending bank and the borrower at the same time. The length of the fixed interest rate period can be 5, 10, 15, 20, 25 or more years. During the fixed-interest period, you always pay the same loan instalment (annuity consisting of interest & repayment) and thus receive planning security. If interest rates are low, a long fixed-interest period is recommended. Even if interest rates are low, the length of the fixed-interest period depends on your personal needs. I will be happy to accompany you in this process and together we will find the right fixed interest rate for you and your project. 

Shorten loan terms with annual unscheduled repayments 

An unscheduled repayment is an additional payment that you can make to your mortgage to pay it off more quickly. With a special repayment, you make an unscheduled payment of a certain amount to your loan account in addition to your monthly instalment. Unscheduled repayments are made outside the agreed monthly instalments and the amount is specified in the contract.  Most banks allow 5-10% unscheduled repayment on the net loan amount per year. The special repayment can be paid once or regularly. If an unscheduled repayment has been agreed in the loan contract, it is mostly offered free of charge or with a minimal interest surcharge (e.g. 5 basis points interest surcharge). Regular special payments reduce the total term of your real estate financing and lower your interest costs.

What features can influence the interest rate of a construction loan? 

Most banks price the interest rate for your construction loan according to the risk. The interest rate for the real estate loan will therefore be higher, the higher the bank's risk. In order for a bank to quantify the amount of risk, it collects a lot of data. Below you will find characteristics that have an influence on the interest rate:

  • Schufascorewert 

  • Internal bank rating based on existing customer data (e.g. for existing customers)

  • Amount of equity capital to be contributed -> the higher your equity capital share, the lower the interest rate will be

  • The mortgage lending value (the bank value of your property often differs from the market value) -> the higher the mortgage lending value, the lower the interest rate can be.

  • What factors influence the mortgage lending value?

    • Construction of the property (e.g. solid construction, prefabricated house (RAL quality mark), log house, prefabricated house, etc.) 

    • Location of the property 

    • Year of construction 

    • Previous modernisation measures  

    • Planned modernisation measures (e.g. new heating system, new electrical system, new roof, etc.)

  • The bank's valuation method for your desired property (comparative value method, asset value method or capitalised earnings value method), which has a considerable influence on the mortgage lending value  

  • Property characteristics such as the type of property (single-family house, condominium, apartment building, commercial property) 

  • Age 

  • Professional qualifications

  • Relationship status  

  • Additional collateral in the form of building society savings, life insurance assets, etc.

  • the amount of the monthly instalment (initial repayment p.a.) and thus the overall term -> shorter term, better interest rate

Constantly repaying a mortgage with the monthly annuity 

Classic real estate financing is usually repaid via monthly annuities. The loan instalment for your construction financing is made up of interest and repayment for a classic annuity loan. If, for example, the interest rate for your property financing is 1.5% p.a. and the initial repayment is 3.5% p.a., then your annuity on your property financing is 5.0% p.a. (interest rate + repayment rate). (interest rate + repayment rate = annuity). This annuity remains the same throughout the entire fixed-interest period. If you divide the annual annuity by 12 months, your monthly annuity in our example is 5% / 12 months = 0.417 % on the net loan amount. An example also helps for a better understanding: 300,000 € construction loan, 1.5 % p.a. interest rate, 3.5 % p.a. interest rate. interest rate, 3.5 % p.a. initial repayment = 300,000 € /100 *5 = 15,000 € annuity per year / 12 months = 1,250 € monthly annuity (loan instalment). The interest is always calculated only on the amount owed, with the repayment you repay your loan debt every month. Over the course of the loan term, the interest portion of the annuity steadily decreases, while the repayment portion (repayment) increases by the amount of interest saved. This is why one speaks of an initial repayment rate when concluding a contract. Use the repayment calculator from MEIN FINANZKONZEPT to determine your monthly loan instalment and get an overview of the repayment schedule for your real estate financing.

What does APR p.a. mean? 

The effective annual interest rate shows the actual borrowing costs per year. This applies to real estate financing contracts with a fixed interest rate during the fixed-interest period. Actual costs for a construction financing can be, for example, processing fees (still common today for immediate building society financing), additional costs due to coupling products (e.g. risk insurance) or also appraisal costs borne by the borrower. Furthermore, the APR shows the actual interest costs per year. This is because many banks charge interest twice a month on their construction financing. The nominal interest rate is the purely calculatory interest rate.

What documents does the bank need for real estate financing? 

Below you will find an overview of the documents required for applying for your real estate financing. The documentation requirements at the banks often vary, but must be complete in advance of the application. My job is to help you ensure that your documents are complete in the run-up to the loan application. This will save you time and help you get the property you want faster.

Creditworthiness documents for real estate financing:

  • Current proof of equity capital (current account statements or annual account statements for pension and life insurance policies, building society savings contracts, time or savings deposits)

  • Current balances of existing liabilities (real estate financing/s, instalment or consumer loans), in particular for follow-up financing or a forward loan

  • Loan agreements for existing liabilities (real estate financing, instalment or consumer loans, leasing agreements), in particular for follow-up financing or a forward loan.

  • The last three payslips

  • December salary statement of the previous year or wage tax certificate

  • in the case of self-employed persons, the last three annual financial statements (E/Ü statement or balance sheet)

  • In the case of self-employed persons, the current BWA and list of totals and balances (SuSa)

  • Income tax assessment notice(s) including income tax return(s) 

  • Property statement for the second property or more

  • Copy of passport

  • Parental allowance certificate (in the case of current parental leave)

  • current pension information

  • Unlimited settlement permit for non-EU citizens - VISA unlimited

  • permanent residence must be in Germany

  • Financing of German citizens abroad possible if salary is in euros and posting by employer -> special regulations may have to be observed

  • Cross-border commuters possible -> critical for self-employed or freelancers

Object documents Construction financing for a condominium: 

  • Current extract from the land register (not older than 3 months)

  • Declaration of division including all supplements and partition plan

  • Dimensioned floor plan

  • Calculation of living space

  • List of past modernisation measures

  • cadastral map

  • Rental agreement for a rented condominium (investment)

  • Building description

Object documents Construction financing for a single-family house: 

  • Current extract from the land register (not older than 3 months)

  • Declaration of division including all supplements and partition plan

  • Dimensioned floor plan

  • Calculation of living space

  • List of past modernisation measures

  • cadastral map

  • Rental agreement for a rented condominium (investment)

  • Building description

Object documents Real estate financing for a new single-family house to be built: 

  • Dimensioned floor plans

  • Living space calculation

  • Cubature calculation and/or calculation of gross floor area

  • Current extract from the land register (not older than three months)

  • cadastral map

  • Building encumbrance information

  • Building description

  • If applicable, list of own work

  • Statement of total costs

  • Building contract or draft contract

  • Building permit, preliminary building application or building notification, alternatively building vacancy register or land use plan

Object documents Real estate financing for an apartment building: 

  • Dimensioned floor plans

  • Calculation of living space

  • Current extract from the land register (not older than three months)

  • cadastral map

  • information on building encumbrances

  • building description

  • Current tenant list with overviews of living space and net cold rents

  • Tenancy agreements

Valuation procedure decides on the amount of the mortgage lending value

and the use of equity capital 

The mortgage lending value of a property represents, from the bank's point of view, the value of collateral for a real estate loan that can be expected to be realised in the long term - within the next 10 years - at any given time. The mortgage lending value can be the absolute upper limit up to which a bank may grant real estate loans due to internal credit guidelines. If you want to buy a property and have it financed by a bank, then this property must be valued by the bank so that it can be used as collateral for your construction financing. The bank uses different valuation methods (comparative value method, asset value method and capitalised earnings value method) for the property valuation. These are regulated in the Real Estate Valuation Ordinance (ImmoWertV). The valuation procedures depend on the type of property. 

Comparative value method 

The comparative value method is a property valuation method that uses comparative values to calculate the market value of a property. The comparative values are derived from the sales prices of similar properties that were sold in the past. The indirect comparative value method is very often used. In the indirect comparative value procedure, the annual comparative values of the appraisal committees are used. The comparative value method is very often used in the valuation of owner-occupied flats, terraced houses, semi-detached houses and plots of land. 

 

  • The following characteristics are considered in more detail when comparing properties:

  • Restrictions on use (e.g. usufruct or lifelong residential right).

  • Floor plan of the property

  • Living space 

  • Energy status

  • Equipment features 

  • Type of property (condominium, terraced house, semi-detached house, etc.)

  • Degree of modernisation (state of construction)

  • Location (subdivision and micro & macro location) 

  • Size of the plot

  • Section of the plot

 

If all the necessary information about the property is available, then the comparative value method is a reliable valuation method and gives you a very good estimate of what your condominium, semi-detached house, terraced house or plot of land is worth.