How do I find the best offer for a real estate loan?

The world of loans is a complicated world. Anyone who wants to take out a loan quickly realizes that there is not just one type of loan. Rather, the market offers various types of loans, each of which is suitable for its own purpose. We explain what a loan is and help you better navigate the world of loans and credits. If you want to buy a house or apartment or build a property, you most likely have many questions about financing. This page therefore provides answers to the initial questions surrounding the topic of loans. This is the only way you can make the right decision that is best suited for your project.

What is the difference between a loan (Darlehen) and a credit (Kredit)?

Loans are a great way to get the money you need for an investment for which you do not have enough savings. A loan is basically a credit that you take out from a bank or an individual. You are the borrower and the bank is your lender. The bank lends you money, meaning it allows you to borrow money from it at a specific interest rate. The interest is therefore a kind of borrowing fee.

Loans are important because consumers cannot afford expensive purchases out of their own pockets and therefore borrow capital from banks or sometimes private individuals. In this way, major aspirations such as buying real estate or a new car can also be realized. Banks make their money by issuing loans, which is why they charge interest—and that makes up a large part of their revenue.

Interest rates often differ significantly from one credit institution to another. The interest rate is also determined by market forces: supply and demand determine how much money is available for lending at a given time. Comparing loans is therefore worthwhile for every borrower.

If you want to borrow money, you will encounter many terms. The terms Kredit and Darlehen are often used synonymously, but actually two different meanings.

The term credit is used in the German Civil Code (BGB) for every form of borrowing – including those that are not directed at money (§ 488 I BGB). A loan, on the other hand, specifically refers to the lending of money (§ 488 II BGB).

An overview of the different types of loans

There is a wide variety of different loan forms you can take out, whether you are looking for a loan to buy a car, purchase real estate, pay off student loans, or start your own business. Every situation is different, and that is why there are so many options.

Some loans are specifically designed for certain groups of people, such as retirees and the self-employed. Others are intended for specific financing projects, such as buying a house or starting your own business. There are also differences in how quickly a particular loan becomes available and whether or not you need a positive Schufa credit score for it. Here are some of the most common types of loans, and each has its own advantages and disadvantages:

Installment loansThese are traditional forms of credit that can be used to finance furniture, electronics, or vacations. You repay the loan amount monthly over an agreed-upon period plus interest.

Instant loansOnly direct banks grant instant loans; after submitting an online application, borrowers can receive their money within 1–2 business days.

Small loansSmall loans encompass lower loan amounts from €1,000 to €5,000. You can apply for them at any bank or credit institution without having to provide personal details.

Car loansCar loans are the most common form of installment loans and one of the best ways to finance a new or used vehicle (car, motorcycle, RV). Your vehicle serves as collateral, so interest rates are somewhat lower than for other loans. This favorable loan may not be used for anything else.

At the 3-way financing make a down payment on a car or another product, followed by installment payments until you have almost paid off the total cost of the product in question. At the end, you still have to pay the final installment.

Private loans / P2P loansPrivate loans can be granted without a Schufa check by private individuals or loan brokers.

A Overdraft facility or overdraft credit is an optional component of your current account and takes effect when you overdraw your account. It is associated with high interest rates. Therefore, if you are concerned that you might overdraw your account, you should avoid this type of credit.

A Line of credit is a mix of overdraft facility and installment loan. It offers a specific credit limit, but at lower interest rates than the overdraft facility would charge.

A Student loan is intended for certain social groups for whom it is more difficult to obtain a standard installment loan.

Civil servant loan are reserved for civil servants, professional soldiers, or public sector employees who benefit from comparatively low interest rates for such loans.

0 percent financing this is offered by many retailers that allow their customers to pay interest-free for a limited period, or the loan comes with very low interest rates. This is intended to make it easier for consumers to purchase goods.

A Annuity loan It is a traditional financing option. It is intended for the purchase, construction, or modernization of a property. Unlike an installment loan, it is not fully repaid within the contract term, but rather requires follow-up financing.

With a Forward loan you can secure low interest rates for your loan up to 66 months in advance. This gives you the certainty that you will pay as little interest as possible on a later follow-up financing of your mortgage loan, because you secure the current interest rates while they are still low. Forward loans are primarily recommended in low-interest phases.

During the term of your forward loan, the commitment fees do not apply, but additional costs are incurred for each month until disbursement. This is because you are charged a small interest surcharge.

Construction financing vs. real estate financing: What are the differences?

Are construction financing and real estate financing the same thing? The answer: fundamentally yes. Construction financing is often associated with the Construction of a property associated with a real estate financing with the Purchase of an existing property. However, both terms mean the same thing: taking out a loan to purchase a property or plot of land. If you want to renovate or modernize an existing property, various financing models are also available to you.

So, it makes no difference to you whether you want to take out a construction financing or a real estate financing. Which term a bank or a financing advisor prefers does not determine the services you can receive.

Construction loans are generally used when building a new house or adding an extension to an existing house. If you want to remodel your kitchen or bathroom for your next renovation project, among other things, you will likely qualify for construction loans from banks and other financial institutions such as credit unions or mortgage banks.

Investing in your own four walls: An overview of financing options

With construction financing, you can finance the purchase of a plot of land or a property, or the construction of a new or renovated property.

Construction loans are especially useful if you plan to build your dream home from scratch – but even if you are just renovating an existing property, a construction loan can help you get a head start on the project and save some money by allowing you to pay for things as they are built.

A construction loan is also a promising way to finance outdoor facilities such as garages, which can often be part of a larger renovation project.

You can apply for construction financing for the following projects:

• House construction
• Construction of an apartment
• Acquisition of an existing property (house, apartment)
• Acquisition of a property
• Modernization or renovation of an existing property

The necessary requirements for a real estate loan at a glance

When used correctly, the construction loan enables the construction of a clearly defined property for a specific purpose. A general statement regarding the prerequisites for construction financing cannot be made. The feasibility of construction financing depends entirely on the personal requirements of the applicant and the condition of the desired property. Whether you can receive the desired loan funds can only be reliably determined once all details have been taken into account.

Therefore, it is recommended to individual consultation to lead. We are happy to recommend an independent financial expert who will ensure that you get the best possible financing. It is best if you contact us regarding this matter.. During the conversation, an advisor can quickly and reliably clarify for you whether you can take out a construction loan.

However, four criteria must basically be met for you to even be able to apply for a mortgage:

• You are of legal age.
• You have full legal capacity.
• You have a regular income.
• You have a permanent residence and a bank account in Germany

The decision to take out a construction loan should not be made lightly. Before opting for such an option, you should definitely consider all aspects of the matter and determine whether this type of financing is suitable for your situation. The following factors should be taken into account:

Your current financial situation
- Do you have enough equity in your current house or apartment?
– Do you have any other assets that could serve as collateral for the loan?
– Are there any other debts you need to pay off first?
– Do you have SCHUFA entries?

Your professional situation
– Do you have sufficient income?
– What job security does your profession offer you?
– What is your partner's occupation and how much do they earn
– Does he or she have other assets that could serve as collateral for the loan?

Even if you do not meet the ideal conditions for a loan, there is still a chance of getting one. A deficit can often be compensated for by another advantage; for example, low equity through extremely high or secure income. Or you might still own a property or have a life insurance policy.

Self-employed individuals face unique challenges when it comes to financing construction projects. Since Self-employed individuals and freelancers do not have a regular, secure income like many employees, the hurdles when applying for a loan are often higher. This includes different conditions and a greater application effort.

For the Creditworthiness and for the approval of the desired loan funds, the field of activity can be decisive. Freelancers—which particularly include members of medical professions such as doctors, architects, or lawyers—are often classified by banks as employees. This is because they are more likely to be expected to have a secure income and potentially higher savings than business owners such as tradespeople.

As with mortgage financing for employees, a high equity ratio also has a positive impact on the financing decision here. Freelancers and the self-employed must not only present their SCHUFA score, the amount of their net income, collateral, or the nature and duration of their activity, but also a number of other aspects regarding their financial situation. It is especially advisable for these occupational groups to consult an independent loan broker in order to get the best possible terms.

Loan and equity

The good news is that you can usually get your entire financing through a loan. The old rule of thumb “20 percent equity is mandatory” no longer applies in every case. However, it still holds true that: Equity is always better. The following construction financing options are possible without equity:

Option 1) 100 percent financing: Incidental purchase costs such as notary fees and property transfer tax are paid by the buyer using available capital.

Option 2) 110 percent financing or full financing: Additional purchase costs are covered by the lender (not to be confused with the fully amortizing loan, a financing variant of the construction loan).

If you want real estate financing without equity, you should ensure that your financing property is in good condition and in a good location, and that you have a good Schufa credit report. It is also important that you have impeccable creditworthiness so that lenders can trust you with their money.

Nevertheless, the disadvantages of a loan without equity still exist, and the risks are higher than with a financing option involving an equity contribution.

What exactly falls under equity?

One of the most common forms of equity is cash in savings accounts, call money accounts, or other bank accounts. You can also use equity in the form of securities such as stocks and bonds. Equity can also be viewed as property. If you own real estate, you are entitled to rental payments from tenants or the sale value of the property when it is sold. Equity can also include building society savings contracts, work performed by yourself or another person on your behalf (e.g., during house construction), as well as life insurance policies and annuities.

If you are looking for a loan without equity, here are 5 tips to help you:

1. Let yourself be competent financing expert advise.

2. If possible, close a credit life insurance or take out term life insurance.

3. If it is financially feasible, consider your Equity for financing incidental costs to use.

4. Find the best Middle ground between interest and principal repayment, to make the monthly loan installments as simple as possible.

5. Close a building society loan agreement , while simultaneously building up capital that can be used for later follow-up financing or other investments in the property in question.

SCHUFA check in real estate financing

An excellent Schufa score is an essential component of credit assessment and creditworthiness. Especially the self-employed and freelancers should not have any negative entries. But even for employees, it is difficult to obtain a loan with a poor Schufa score.

In any case, poor credit leads to higher interest rates. If the Schufa entries are positive again at the time of applying for follow-up financing, more favorable interest rates can be requested again—depending on the interest rate situation at that time. A sufficiently high, permanent income and a measured proportion of equity should be available so that the property remains affordable. It can even be worthwhile to wait with the financing of the property until the negative Schufa entries have been deleted.

Please note that errors can also occur in the SCHUFA entry. Therefore, every consumer has the right to have their entries at SCHUFA checked once a year and to receive information about them.

How is a loan applied for?

The application for financing is a complex process that requires careful preparation. To ensure that you receive the best possible offer, it is recommended to consult a professional, independent financial advisor. He analyzes your individual financial situation, checks the Property documents and submits to you individually tailored construction financing proposals.

An independent financial advisor offers individual advice on the subject of construction financing. He works for his clients, the borrowers, independent of banks, meaning he can access and compare models and conditions from numerous banks. This is free of charge and allows you to have your personal financial situation checked by a reputable expert.

You not only benefit from favorable conditions for your loan, but also of the coordination and application for financing. You have a single point of contact for all your questions – before and during the construction financing. They ensure that the loan agreement is structured in your best interest.

In a free consultation, he will also help you Funding opportunities for your financing project to review. Then you can take your time to decide on an offer! Afterwards, the financial expert compiles all the necessary documents for financing and forwards them to the lending institution. The bank reviews all documents and, ideally, approves the desired loan amount.

When purchasing an existing property, the lender provides the required loan at the agreed time. When starting construction, the loan is usually disbursed in installments according to the construction progress.

What documents do you need for your loan?

Which documents are necessary for applying for a loan depends on the project and the lender. Every financing is different, and your financing advisor will help you figure out which documents are required.

To get your first financing off the ground, you typically need to bring the following documents:

Personal documents that prove your creditworthiness to the lender:

• The last three payslips
• Pension information
• Current income tax statement
• SCHUFA credit report
• Proof of other ongoing loans

Self-employed individuals may need additional:

• Balance sheet and profit determination
• business evaluation
• Extract from the commercial register

Real estate documents:

• Purchase agreement
• Current land register excerpt
• Blueprint/Floor plan
• Zoning plan
• Calculation of living and usable space
• Gross floor area calculation
• Site plan / Cadastral map
• Construction description
• Deed of partition
• utility bill calculation
• Property description and photos
• Copy of the building insurance policy
• Extract from the register of public land encumbrances
• For new construction properties, additional documents are often required.

Calculation of monthly loan installments

There is no single formula for calculating the monthly loan installment of a financing arrangement. The interest rate and the term of your loan depend on many factors, including the type of loan and how much you can and want to afford.

The question “What can I afford?” forms the basis for the loan interest rate, because this limit should never be exceeded. A careful assessment of your individual personal and financial situation (assets, income, and expenses), the property costs, the loan amount, and other factors determines which financing concept is right for you. The annual interest rate alone does not indicate whether a loan is suitable for your project. Our financing experts will help you determine your loan interest rate.

Financial support for your funding through subsidy programs

If you need a loan, you may be able to apply for a subsidy program. There are many different subsidy programs for construction loans, and each has its own conditions that must be met in order to qualify for the funding. On the one hand, there is government funding in the form of "Wohn-Riester" and KfW loans; on the other hand, federal states and municipalities have their own programs to promote homeownership.

The federal states predominantly support families with children with low-interest loans. You can search for suitable funding programs on the websites of the consumer advice centers and the KfW Bank, as well as in the funding database of the Federal Ministry for Economic Affairs.

The grant can be awarded in the form of a loan or a subsidy for the financing project. The funding application must generally be submitted before the implementation of the measures begins (e.g., new construction, conversion, renovation). The requirements can vary from program to program and include, in particular, the level of income or the question of whether you plan to use renewable energies in the construction. Therefore, it is advisable to inform yourself about the funding opportunities in good time or to seek advice from an independent financing expert.

From annuity loans to combination loans: An overview of various loan options

There are many different loan options, and it is important to find the right one for your project. Your financial advisor will be happy to help you find the optimal loan for you. Here is an overview:

1. Annuity loan: This is the classic form of financing. You pay a fixed monthly installment and a fixed interest rate over the entire term, allowing you to calculate precisely how much your payments will be throughout the entire life of the loan. If a remaining balance is left at the end of the term, follow-up financing is arranged for it.

2. full repayment mortgage is similar to an annuity loan, with one major difference: no remaining balance = no follow-up financing necessary! The interest rates for such a loan can be very favorable – and thus the interest costs as well –, but the installments are higher because they are paid all at once rather than distributed over time as with an annuity loan.

3. A callable loan is a flexible form of financing that allows you to terminate your loan early. There is no prepayment penalty, but there may be certain lock-in periods.

4. A fixed-rate loan means a fixed monthly payment at a fixed interest rate for the entire term. For this purpose, an annuity loan is combined with the building society savings contract (Bausparvertrag). This provides borrowers with the greatest possible interest rate security.

5. A building loan agreement loan can be integrated into the financing. In most cases, the building society loan serves to secure the interest rate for the follow-up financing. In the first phase, the building savings contract is saved up until it is ready for allocation.

6. Wohn-Riester loan exists for both savings plans and the repayment of a construction financing loan. By applying for the Wohn-Riester loan, future homeowners can receive government subsidies.

7. A Flexible loan is a short-term fixed borrowing rate, as with a flexible loan, meaning it is usually adjusted every three months to the current EURIBOR money market interest rate. It makes sense if you need more money at a later time to invest it in unscheduled repayments.

8. A capped-rate loan features a variable borrowing rate with an interest rate cap. The borrowing rate of the loan cannot rise above the interest rate cap. As with the flex loan, this rate is not fixed, but is based on the current money market interest rate EURIBOR. A cap loan is more suitable for risk-tolerant borrowers.

9. With a KfW loan real estate buyers can secure a government subsidy for the loan. The low-interest KfW construction loan is fundamentally open to every citizen. The KfW homeownership program subsidizes the purchase or construction of a house or a condominium, and there are additional programs alongside it.

10. Forward loan are fixed-rate loan agreements (interest rate lock periods) that begin on the date of refinancing. Forward loan borrowers value long-term planning. However, to apply for a forward loan, current real estate financing must already be in place.

11. The Combination loan is not only a classic loan, but also combines a special repayment loan with a fixed borrowing rate. The customer can therefore decide, depending on their financial situation, whether they want to repay their entire loan all at once or over a longer period of time. The combination loan offers great flexibility for borrowers who want to pay off their mortgage faster than originally planned.

Commitment interest: When do they have to be paid?

The lender holds the money you are borrowing to build your property and cannot use it elsewhere. To compensate for this, they charge a commitment fee on the undisbursed capital amount after the commitment-free period has expired. This period varies from bank to bank, and the interest rate is also variable (e.g., 3 % commitment interest per year or 0.25 % per month on the undisbursed loan amount).
Construction delays such as pending building permits, special requests, or the insolvency of a construction company can significantly extend the period during which commitment interest is charged.

FAQ – Frequently Asked Questions

What happens if I am still within the fixed-interest period of my loan and want to sell my property?

Yes, that is possible. You can sell your property while you are still paying off a fixed-rate mortgage. The loan is paid off from the proceeds of the sale, and a prepayment penalty applies if you pay it off during the fixed-interest period. This depends on the individual annual interest rate and the remaining term of your loan. It is important that the selling price is higher than the remaining debt. If your property is located in Munich or the surrounding area, you can contact us with your sale project. We ensure that you get the best possible purchase price.

Can a registered land charge serve as security again?

If you have a mortgage on your property and want to take out another one, you can use planned value improvements as collateral. The conditions are as follows:

• The land charge must have been entered in the land register before the real encumbrance.
• The value enhancements must have been made before or during the term of the loan.
• The financial circumstances of the borrower must permit further borrowing.

How do the interest rates on a subordinated loan differ from other types of loans?

A subordinated loan comes into play when the bank's senior financing cannot cover the entire loan requirement. This means that the lender bears a higher risk, which is why a subordinated loan also has a higher interest rate. The market for subordinated loans is difficult to navigate, and not every bank offers this type of financing.

Since there are also many dubious providers on the market, the Federal Financial Supervisory Authority (BaFin) has made it its mission to distinguish between reputable and dubious providers. Which providers in the field of real estate financing offer subordinated loans or are specifically suitable for your project will gladly be checked for you by your independent financial advisor as part of a financing inquiry.

A comparison of the various providers is advisable in any case, since subordinated loans are already more expensive than senior loans due to the higher risk, and there are also major differences in terms and conditions among providers. The interest rate for a subordinated loan depends on many factors.

It depends, among other things, on the equity ratio, the collateral value, the result of the credit check, and so on. The annual interest rate for a subordinated loan is also determined by the creditworthiness of the borrower and other factors such as the debt-to-equity ratio or net worth.