Financing crises in your own four walls and how to protect yourself against them

The financing of a house purchase or construction project lays the foundation for builders and buyers. The decision accompanies you for the next years or decades, in which their own and their financial situation can change enormously. Therefore, many questions arise right at the beginning that need to be clarified. In order to ensure stable financing and to make sure that you will not face any financing crises in the future, you should have clarified all important financing issues in advance.

Financing and its pitfalls – being covered for every eventuality

Even before the construction or purchase of a house, many questions arise that are of high value for the financing. Is the purchase price of the property in line with the local market price? What is the condition of the property? Are there any construction defects or contaminated sites that could lead to renovation or repair costs? When is the building permit from the authorities available and will it be granted in time? Is the construction company reputable and will it be able to complete the house at the desired time? How high will the operating and ancillary costs be in the coming years? But also the question of follow-up financing must be clarified. More information about the possibilities of follow-up financing and debt restructuring.

Identify risks in advance, plan for them and protect against them

Risks can arise faster than you think and quickly you are faced with a financing crisis and are not prepared for it. To counteract this case, you should protect yourself against such risks and include them in the financing. The most typical risks when buying a house or building:

Loss of earnings

The loss of a job or a change of job with a lower salary is an important risk to consider, because such a case occurs faster than you think. But also a further, not planned child can represent a risk, since also here a salary in the family could fall away. For such cases, you should take out a financing with the possibility to change the repayment rate. In such a case, you can adjust the monthly repayment rate to your new situation and lower or, in the best case, increase it.

Major repairs

A case that can occur with anyone. Water damage, a defective heating system, the roof or even the facade must be renewed. Things that happen to even the best house and you have to be prepared for. A building savings contract can be saved with small amounts right from the start of financing. This way you secure a future low-interest loan. But also for smaller purchases, such as a new washing machine or a car repair, a small financial cushion should be set aside.

Death

So that the loss of a parent or partner is not compounded by the loss of the property or a financial crisis, provisions can also be made for this in the financing. It makes sense to take out term life insurance or residual debt insurance. There are attractive contracts for this, where the premiums continue to fall with the remaining debt to be repaid. Even if many do not like to consider this scenario, it is still better to prepare for such a case, so that the situation does not turn out to be a financial crisis.

Parents in the nursing home

If the parents are placed in a nursing home, the children are often called upon to finance the maintenance. Of course, the remaining assets of the parents or saved back, but it often comes to a financial support of the children. A nursing home is not cheap and especially with only children, this can become a financial problem. First of all, however, a deductible is calculated so the personal needs of the children to determine how much can be paid. Here, repayments and costs for financing can also be claimed.

Interest rate rise

Low interest rates naturally tempt buyers to buy a home or take out a construction loan. Buyers who buy a house in such a low interest rate should be aware, however, that the interest rates also rise again, especially with a loan with a short term, there is a risk of high interest rates in the follow-up financing. To prevent this, you should think about a home loan and savings combination as an alternative to the bank loan. With this favorable interest rates can be used and secured over the entire term. In addition, state subsidies are also possible.

In general, it is important to bring in as much equity capital as possible at the beginning of a financing and later to regularly use the possibilities for unscheduled repayment. However, if a risk should occur and your general conditions change, it is always important to talk to your bank advisor. Every bank has the interest to make the financing sustainable. If the framework conditions change, a good advisor will help you in word and deed to solve your problem, as this is also in his interest.

Important questions that you should clarify before the financing discussion

Before you face the conversation with the financier of your bank, you should clarify important questions in advance. This will not only ensure a good conversation where no questions remain unanswered, but you can be sure to find the right loan for you.

  • You should have a stress and security check done to determine your ideal loan rate
  • Can you include home loan and savings contracts that are ready for allocation?
  • How is the mortgage lending value or the mortgage lending limit for your property determined and how high are they? What are the consequences of this?
  • What does the effective interest rate mean and is it relevant for my property?
  • What fees in their funding are negotiable?
  • Can you keep track of the various credit and loan offers and assess them correctly, or are there still unanswered questions that need to be clarified?
  • Take into account that you should be debt-free at retirement age
  • Find out about KfW loans that offer promotional loan programs
  • Pay attention to the fixed interest period and consider the profitability threshold in this step
  • How are interest rates at the moment and what are the forecasts for the future?
  • What are the criteria for granting loans and how is the interest rate determined?
  • What about your own credit rating? Does it give you a negotiating position for your financing project?
  • Where can you find cheap construction and real estate financing at all?
  • Did you get a good financing plan with an accurate loan history and repayment schedule?

Find the right financing – choose the right financing modules

When financing, you should choose the right financing components to be sure that you find the right financing. To do this, you should ask yourself whether a fixed interest rate has been selected that actually corresponds to the current interest rate market. In addition, a fixed interest rate comparison should also be carried out. Pay close attention to the interest rates when financing, as you will have a major say in their repayment rate. In addition, pay attention to whether you have a loan offer with flexible repayment, as this can reduce risks.

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