Determining the purchase price – So you have now decided whether you want to buy a yield or investment property, whether unrented or rented and you have also already informed yourself about the location of your new property? Before the real estate search can start, it is necessary to determine the purchase price. Here you can find out which factors are important here and how they also influence your financing.
Determine maximum purchase price: Important factors
One of the most important steps in the purchase of a property, which is often underestimated, is the determination of the maximum purchase price of the property. In order to avoid unwanted surprises here, it is important to determine this before you start looking for a property. This usually involves sitting down with your bank advisor and going over your finances. You then show a certain amount of equity and the bank then gives you a corresponding loan. The amount of this loan depends on your creditworthiness (for this you have to submit a self-disclosure ), as well as on your equity to be presented. The loan-to-value ratio of the property and the monthly charge are also taken into account.
Equity X + Bank loan Y
These are the factors that matter:
- Credit rating
- Mortgage lending value of the object
- Available equity
- Monthly load
Let’s now go through the individual factors in a little more detail:
Credit rating: assets vs. liabilities
When your credit rating is checked, your assets and liabilities are mentioned and compared. If the balance is positive, i.e. your assets outweigh your expenses and liabilities, your chances of getting a loan are very good. And the higher this credit rating, the lower your equity investment. After all, the bank also wants your money back as soon as possible and wants to be sure to get it.
Assets are matched with liabilities
Mortgage lending value of the property: market value & fair market value
The mortgage lending value of the property is generally lower than the market value. The market value is the selling price of the house or apartment if it were sold at the present time. Therefore, the market value is also called ‘theoretical market value’. The mortgage lending value is on average 20% below this. In order to minimize the risk of loan default, banks base their lending decisions on the mortgage lending value and not on the market value.
Mortgage lending value = market value – 20%
Available equity: Dependence on the balance sheet
As a general rule, 20% equity capital is needed. As mentioned before, the exact amount of equity ultimately depends on your credit rating. The more positive your balance sheet, the less equity you have to show. So you can also invest with an equity of 10% or 15% already in a property.
The better the credit rating, the less equity capital
Monthly load: income & expenses
The last important factor that influences the financing and thus the maximum purchase price is your monthly burden. Similar to the credit check, income and expenses are compared here. This is important for the bank, as it allows them to set the conditions for repayment, interest and redemption.
Conclusion: Determine maximum purchase price & financing
So, in addition to your credit rating and available equity, your monthly financing and loan-to-value also matter. This way, you can not only determine the maximum purchase price before you start looking for real estate, but also determine the terms for repaying your loan.
Buying real estate: Learning from A-Z
If you want to learn even more about the maximum purchase price, stop by our guide:
- Purchase price height (external)
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