110 Percent financing. Who can afford it?

A 110 percent financing or. Full financing not only finances the entire purchase price of the property AND all ancillary purchase costs. In practice, however, 110 percent financing and full financing are rarely realized because the hurdles are very high. A prerequisite is a positive risk assessment by the lender, comprehensive collateral and an especially good credit score. of In addition, corresponding interest surcharges are demanded, which makes the construction financing more expensive on the bottom line. Unlike 110 percent financing, full financing is when the property is financed with no equity but all incidental purchase costs are paid for with the student's own funds.

110 percent financing: buy real estate with no cash down

The ancillary purchase costs, which are also paid with a 110 percent financing mittles construction loan, vary by state and can range from 7 to 12 percent of the property purchase price. The amount is calculated from the purchase price, realtor and notary fees, as well as state-specific fees, and includes the following:

  • Brokerage fee
  • Notary fee
  • Land registration fees
  • Real Estate Transfer Tax

If you choose standard construction financing and are keen to keep the interest rate – and thus the borrowing costs – as low as possible, you should generally contribute at least 30 percent of the total financing of the purchase sum yourself and pay all ancillary purchase costs with your own liquid funds.

The disadvantages of 110 percent financing

  • The conditions of full financing – i.e. the invested interest rate – are always more expensive than financing with an equity component.
  • There are few providers for 110 percent financing. In addition, applicants are particularly critically examined.
  • Long-term collateral that minimizes the risk of full financing is always necessary.
  • In addition, very high repayments are required in the case of full financing, which in turn has a direct impact on the monthly burden.
  • The applicant should be completely debt free, not servicing any other loans and have a particularly good credit rating.

TIP: Use the accedo condition calculator to see the dependency of equity and offered interest rate.

Banks reduce the risk of default with high interest premiums and high repayment rates

Those who can raise less than 30 percent of their own funds for the purchase price of a property are usually faced with a higher interest rate. In case of a 110 percent financing, the bank requires further risk surcharges, which depend on the economic circumstances of the creditworthiness, the property value, the location and other personal conditions of the prospective borrower.

This risk premium serves as security for the bank: because if the ancillary purchase costs are also financed, the loan amount to be financed often exceeds the value of the property. The risk premium thus protects the bank from the expected difference between proceeds in the event of foreclosure and the remaining debt on the loan at the time of default.

Who is eligible for full financing?

In many cases, the "40 percent rule" applies to whether a bank will even talk to the prospective borrower. This "40 percent rule" refers to the fact that the monthly installments for all loans of the applicant may not exceed 40 percent of the monthly income. That caps the maximum loan amount made available and has the condition that the prospective borrower has a higher than average income.

Make high repayments a prerequisite for full financing

Banks expect borrowers to make high repayments. Together with the "40 percent rule", the high repayment rate caps the amount of the monthly installment and thus the amount of the loan granted. In this way, banks also ensure that the customers of full financing have a high and, above all, stable income.

Credit rating is another hurdle to full financing

The SCHUFA information is additionally important. The register should not show any negative entries of the prospective borrower. The higher the score, the more likely full financing will be granted. Nevertheless, each bank additionally sets its own standards and evaluates the information from the SCHUFA register according to them.

Basically, you should check the SCHUFA information before a request for a full financing in advance and have possible incorrect entries corrected.

How to find a bank for full or 110 percent financing?

Non-bank construction financing brokers are a good place to start. These have a daily updated overview of all banks that are in principle willing to support a construction financing without equity capital.

In addition, it is always worth checking with your own local bank. She usually knows your financial circumstances best. An important aspect is that the house bank is informed about the stability of the income and can look back on a common history:

  • Were there loans in the past that were serviced regularly?
  • Do the data show that you had enough money at all times?

In addition, seriousness and transparency are required in the course of the application: applicants should provide the bank with all the information requested, hide nothing and always provide relevant information. If irregularities occur in the course of the application, the talks are usually terminated immediately.

For banks, 110 percent financing is a good deal

Informed borrowers give a serious, reliable impression, which signals to the bank that the borrower understands the implications of full financing. Therefore the support by a bank-independent consultation and support by a construction financing mediator as well as the common search for an appropriate bank is advantageous. To obtain full financing sooner, borrowers should finance the incidental acquisition costs themselves.

Those who finance in full must be aware that they often repay for longer, receive a worse borrowing rate and have to bear higher repayment installments. accedo AG shows in an example calculation what a 100 percent financing with a comparatively moderate loan amount of 220.000 Euro means.

Full financing – an example of calculation

  • Full financing from 220.000 euros (at the interest rate at the beginning of 2020):
  • With 100 percent financing, the borrower is charged 744 euros per month.
  • In the case of 110 percent financing – i.e. with ancillary purchase costs – 906 euros per month will be due.
  • However, if the prospective customer brings 40.000 equity capital into the financing and thus needs 180.000 Euro loan, he pays only 574 Euro a month – and that over a period of 20 years. In the full financing case, on the other hand, the term is 35 years.
  • It will be expensive if the full financier wants to part with the property after 15 years.
    Although he receives the repaid amount of 73.292 euros – but also only under certain conditions – back. Of the 55.865 euros in interest costs incurred to date, however, he sees nothing more. With a construction financing with 40.000 equity capital, on the other hand, he receives the repaid 101.192 euros again and must only 38.405 euro in interest costs write off.

Conclusion: Financing real estate without equity – an alternative for high earners

Full financing is suitable for borrowers with a high income secured over many years, who are also able to pay with high repayments (z. B. 10 percent) to be able to live. Another limitation: self-employed and freelancers usually cannot find a bank that provides 110 percent financing. The best cards here are held by younger civil servants in the middle and higher ranks.

If long-term, good and stable income conditions are given, a 110 percent financing may be an alternative. Full financing can be useful under certain circumstances due to the tax law, which under certain conditions charges interest on debts. However, this must be discussed in detail with the tax advisor. Also, the construction financing concept is often a mix of different building blocks – and not a "simple" annuity loan. That is why it is advisable to seek expert advice, independent of banks, for full financing.

Our tip: Expert advice is the basis of a safe full financing

Full financing costs more. It leads to higher monthly charges. And also causes problems if you sell the property within the loan term. Banks usually offer the 110 percent financing only to civil servants and high earners who are long-term employees.

It has advantages when a tax saving concept is worked out together with the tax advisor, based on the tax deductibility of interest on debts.

In addition, it requires extensive construction financing know-how, which not everyone has. Combinations of different financing modules often come into play. Then full financing can also contribute to optimized asset accumulation.

Well advised to buy a property with little equity anyway

Master obstacles of the real estate purchase and realize with small own capital funds nevertheless the real estate dream.

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