Equity forms the basis for a solid building loan framework and thus also for a successful building loan. Often, financing with a building loan is given too little attention. Accompanied by inadequate advice, financial fiasco is almost inevitable. But choosing the right building loan and a high equity capital not only saves a lot of money, but it also significantly reduces your risk!
Before you look for a suitable property, clarify your financial framework for your building loan in advance. Get enough advice. An hour or two is not uncommon.
The question of equity
- How much equity do you have?
- How much debt can you borrow without getting into debt?
How much equity do you need?
A building loan and the amount of equity is controversial and often discussed. Make an inventory. List everything you have in assets. This does not include the subsidy from grandma and grandpa, which you may have to pay back, but really only your own, very private fortune. Make a list of your assets. From this, you can see how much equity you can raise for your building loan.
- Cash in accounts, savings books, securities
- Building society contracts that are no longer needed
- Life insurance, funds or other capital investments
- Valuables that you no longer need
- Real Estate – Possession that can be sold or mortgaged
Didn’t you forget anything? Then add up and consider how much you want to use for your building loan. Now you know how much equity you can really have. To make things easier for you, use our checklist.
How much debt do you need?
To set an exact financial framework for your building loan, you should now do two things. First, make a comparison of all income and expenses. As a second step, you should work with your trusted advisor to determine a realistic framework for your building loan. You can only know what works and what doesn’t if you know your stress limit. This is a guarantee of a solid foundation for your building loan. Remember that you are not using the entire building loan framework. You need reserves to finance, for example, the purchase costs or unforeseen things. Safety always comes first!
Equity reserves mean security
There are other things to consider when calculating. Don’t forget that for the duration of your financing with a building loan, all other costs in life continue. So unforeseen car repairs, a new washing machine or possibly repairs to your property.