Despite high real estate prices, financing appears affordable even without equity. With the full financing of a house, the buyer or builder does not inject equity into the home equity financing. What does a mortgage without equity / full financing look like? In the case of mortgage lending without equity or full financing, a property is acquired entirely by credit. Is full financing more useful? Further illustration at hsalliance.org
Real Estate: Full financing is risky
With full financing, the acquisition of a home is possible even without own funds. Due to the low mortgage rates, many consumers dare to use a high-level loan to have their own home. Despite rising prices, affordability appears without capital. Full financing initially has the advantage that the customer or acquirer remains liquid.
Full financing is referred to by experts when the potential property owner lends out a 100 percent share of the purchase price. In addition there are brokerage commissions, notary fees, land registration and real estate transfer tax as well as relocation and renovation costs. That’s why dr. med. Mike Coples of the Institute for Financial Services (iff) in the Hanseatic city at least to cover the costs incurred and the change from capital.
With a 100 percent refinancing with only one percentage point repayment, around 30 years pass until the bond is redeemed. With rising interest rates, full financing becomes scarce at the end of the period. Another risk he considers the fluctuations in market prices. Falling land prices or loss of value may put the debtors in a predicament to have to dispose of their home or condominium during the life of the loan.
“They paid $ 350,000, but you can only sell for $ 300,000.” The low level of interest rates leads to borrowing high mortgage loans. While the borrower wants to bring half a million euros for the desired apartment on the market, the house bank wants to award only a loan in the amount of 400,000 euros. Divorces, Accidents, Unemployment, Sickness: When fully funded, any change in income is immediately reflected in the account.
Full real estate financing
Full financing, ie the purchase of a house or the construction of a house without own funds, naturally has its charm due to the currently very low European interest rate. 2. However, the complete financing of various types of loans has certain advantages. Attractive perspectives are the favorable building interest rates, annual price increases and high rents, but what does real estate or mortgage lending mean without own funds?
Finance without own cash? There are two types of full financing: firstly, lending without savings or existing capital, but with a good credit and income base, and second, full financing without the capital flowing into construction loan finance. With the crisis of the past decade, lenders are now much more concerned about who gets loans and what security is available.
However, this full financing will incur the same costs as partial own funds. In the case of a real estate acquisition or real estate sale, a notary companion must be present, which accounts for 1.5 to 2% of the purchase price, depending on the area. A real estate transfer tax or vehicle tax is due as soon as the transfer of the property to the new owner in the cadastre after the acquisition is pending.
If a prospective buyer hired an intermediary to search for a real estate or a completed property, he will charge an agency fee of between 3 and 6% of the sales price in Austria, up to 7% in Austria, in the Federal Republic of Germany. sales tax can amount to. Financing without own funds is based on loans, ie funds provided by credit institutions, to be repaid in pre-agreed tranches and with an interest surcharge.
An amortization rate consists of a monthly installment and an interest rate that is calculated based on the remaining debt. With the current repatriation the remaining debt and also the interest decrease, which can lead to declining monthly rates. A due date is agreed for the total amount at which the entire loan volume is repaid.
Although this gives the borrower the greatest possible scope for financing the term of the loan, it also entails the associated risk that the borrower’s own financial situation is such that a repayment on the due date is not possible. Until a few years ago, a very popular financing option was a term loan together with the completion of a repayment vehicle (eg life insurance), which is paid out on the maturity date of the loan and thus used for repayment.
The problem here is the variable interest rate of the life insurance in comparison to the fixed rate of the final loan. The income from the death insurance can decrease and therefore not enough to cover the loan amount. Financing without own funds involves dangers that the customer must know in advance. For investments in yield objects such as multi-family houses or the purchase, renovation and resale of real estate as well as pure real estate speculation, the construction cost financing without own capital, however, is quite suitable.
This form of financing is particularly useful when a capital stock ensures transactions and seeks a quick interest.