Buy a house without equity

Full financing: the alternative financing option

Many people pursue the dream of owning their own four walls. This development has increased significantly, especially during the Corona pandemic. However, a look at real estate prices and the recent sharp increase in construction and financing costs led to disillusionment among many interested parties. Only very few of them can afford the often recommended 20 to 30 percent equity, which is why full financing, i.e. a loan for financing without equity, is becoming more attractive. However, since this variant is also associated with significantly higher monthly burdens and a higher risk, the individual situation should be clarified in detail beforehand.

What are the advantages of full financing?

The biggest advantage of full financing is, first of all, that you can buy a property without having to raise your own financial resources. There are no long waiting times and no long savings period.

Full financing can also be advantageous when it comes to interest rates. If the interest rate is low, it may be cheaper than saving money for years. This is especially the case if real estate prices and interest rates rise sharply in the future and you have to continue paying rent until you buy.

You can also benefit from full financing in times of low interest rates if you can invest your savings with a higher return than in the form of equity. The prerequisite for this is that you have enough financial flexibility to be able to pay the monthly installments well. Last but not least, there is also a big advantage for everyone who does not live in the purchased property themselves, but wants to use it as an investment. The less equity is contributed, the more the return increases. It is important that the rental income is higher than the financing costs.

Carefully weigh up the risks of full financing

Anyone thinking about taking out full financing should also be aware of the risks. First of all, it should be taken into account that the Buying real estate is more expensive overall and the monthly rates are also higher. In addition, due to the higher loan amount, a longer term may have to be chosen. Paying off the mortgage takes longer, which in turn increases the risk of default. This is also one reason why it is more difficult for self-employed people to get full financing because they have a higher risk of default.

If there is a remaining debt at the end of the fixed interest period, this brings with it the risk that follow-up financing will have to be taken out on less favorable terms. And this risk increases especially with large loan amounts and corresponding repayment periods.

You have to expect these interest rates when fully financing

When it comes to building financing, interest is one of the most important cost points. Here the banks charge higher interest rate premiums to compensate for their higher risk. The less capital you bring in, the higher the premiums will be.

If you finance more than 80 percent of the purchase price through loans, you have to expect surcharges of 0.3 and more. If you finance over 100 percent or use the 120 building financing without equity, there is an even higher risk premium for the additional cost share. This is because this financing part is not covered by the property value. If the financing fails and there is a subsequent foreclosure auction, part of the claim can be written off because the remaining debts are less than the auction proceeds of the property.

The high overall burden when buying a property without equity is often due to the fact that the banks set a higher minimum repayment. Some demand two percent, others even three percent. This means that you are more likely to be debt-free, but the monthly burden increases significantly.

Who is full financing suitable for?

Full financing is not suitable for every borrower. The most important thing is to have financial reserves and an income that is large enough to cover the monthly payments. A permanent, secure job with good future prospects is advantageous. Collateral such as other real estate should also be available. Borrowers must also demonstrate sufficient creditworthiness (for example via the SCHUFA credit check). Buying a house without equity despite negative SCHUFA is usually not financed by banks.

In order to provide additional protection, credit institutions usually take a much closer look at the property in advance than when financing a building with equity. The main factors that play a role here are the location, the quality of the building structure and the standard of the equipment. This ensures that, in the event of default, they can sell the house on good terms and cover their losses from the sale.

There are risks for borrowers, especially in the event of job loss. In this case too, the monthly installments must continue to be met. Although this risk can be insured, this incurs additional additional costs. Therefore, those interested in having a secure job should opt for full financing.

Nevertheless, check equity availability

Those interested in real estate are often not even aware of the extent of their equity. Then they look for full financing, even though they actually have the means for lower-risk construction financing with equity. It is therefore important to carefully examine your own financial resources in advance. The focus should be on:

• Cash holdings
• Available money in accounts
• Capital saved from building savings contracts
• Stocks and securities
• Surrender values ​​from life financing
• Assessable mortgages on other properties

If you have little equity, there are also ways to increase the percentage. For example, you can reduce costs by taking on individual renovation measures yourself or by looking for a property at a lower purchase price. There are a variety of options here, which are best discussed with a real estate expert. Alternatively, you should plan time to build up equity. This is possible, for example, through a building savings contract, a private loan or an early inheritance.

Buying a house at 50 without equity – is that possible?

You often come across the question of whether you can still get real estate financing without equity at the age of 40 or 50. Basically, the first thing to say here is that there is no legal maximum age for building financing. However, in accordance with the residential property loan guidelines, banks must ensure that the loan debt can be repaid within the borrower's statistical life expectancy. When financing for more than 40 or 50 years, there are special requirements that also affect equity.

The older you are at the start of financing, the higher the equity share should be. Significantly more should be planned here than the otherwise recommended values ​​of around 20%. This is because there is a higher risk that the borrower will die during the term and that the installments can no longer be paid. Banks therefore have a great interest in ensuring that the loan debt is paid off as quickly as possible. In this respect, financing without equity becomes less likely with age. Things can look different if you have an above-average income or if you share financing with other people who are ideally significantly younger than 50 years old.

Conclusion

Whether full financing makes sense must always be decided on a case-by-case basis. In any case, it is advisable to look at 100% financing as an alternative to 110% financing, where you at least pay the additional costs yourself. This means you may get a cheaper interest rate and the monthly payments will be lower.

In principle, it is always of central importance to carefully weigh up the risks of full financing or real estate financing with a small equity share. Especially in the event of job losses and other unforeseen life events, there is a great risk that the installments cannot be continued to be paid or that debts will still remain if the property is forcibly sold. In principle, we always recommend an equity share of at least 20 percent. Further questions on the topic should be discussed with an experienced real estate agent.