In the past, the old rule of thumb applied to home builders and buyers of real estate: for solid construction financing, I should bring at least 15 and 20 percent of equity. Things look a lot different today:
Not only in the United States or Great Britain, buying houses and apartments without equity has long been standard. This form of financing has also been possible in Austria for some time and is becoming increasingly popular with consumers. But there are conditions:
Low-interest rates and offers: With home finance without equity, you can buy the property you want immediately and save a lot of money if they offer is correspondingly low. The existing equity does not have to be touched and can remain in the cash register for other emergencies.
However, inform yourself about the current conditions for real estate financing without equity! As a rule, these are worse than with classic annuity loans with standard mortgage lending values of 60 to 80 percent.
Good solid income: Your creditworthiness is crucial. If you have an open-ended employment contract, you will quickly find a reputable provider. If your job is temporary, you will not find a good bank for home finance without equity. Furthermore, your current income must usually have a certain amount in order for the loan application to be approved.
Documents and collateral: Financing without equity also requires the usual requirements and evidence. Age of majority with proof of identity in Austria, proof of income, bank statements and employment contract. Further ongoing loans and liabilities, as well as a positive query at KSV Banks, often require special collateral such as mortgages so that a cheap loan agreement can be concluded.
Which repayment and loan procedures should you take into account when fully financing?
If you get full financing in Austria, you do not have to use equity to buy a property. The loan taken out must still be paid in installments. In addition, agreed interest is payable, which you transfer to the bank. You can choose between two forms of loan for repayment:
Annuity: Away are here ordinary repayment loans, the so-called annuity. This consists of monthly installments and certain interest rates, which are calculated according to the remaining debt.
The longer the repayment takes, the lower the interest rate will be. The monthly charges are then also significantly lower. With a lower repayment rate, however, you, as a prospective customer, have to expect a longer repayment period – which makes the loan significantly more expensive overall.
Final loan: With a final loan, however, only the interest accrued is paid first. The actual loan amount must then be repaid to the bank at the agreed term – but the full amount in full. As a borrower, you only have to pay a small amount of interest for a while, but you can also go into high debt if the entire loan is not repaid to the bank on the agreed date.
Tip: Follow-up financing is usually necessary in both cases. Unless you can pay the entire remaining debt from your own cash or have the necessary amount in the form of, for example, insurance or a building society saver.
Important: In the case of annuity loans, the remaining debt after the expiry of the commitment period is significantly lower due to the repayment already made than in the case of final loans.
What are the advantages of mortgage lending without equity?
Those who realize their dream of owning property without equity can get into their own four walls more quickly. You do not have to wait many years for the recommended equity share of 15 to 20 to be saved, but you can immediately look for properties with low prices and interest and purchase them quickly.
This also saves you expensive rental costs ahead of time. This is a decisive advantage, especially nowadays: after all, there is a very low-interest rate level on the construction money market on the one hand, and on the other hand rental prices continue to rise almost annually.
Building finance without equity capital is also suitable for the purchase of various types of real estate. For example, you benefit from the increasing value of apartments or houses that you use yourself. Even those who buy a property, renovate it and then resell it can quickly achieve a return thanks to construction financing without equity.
After all, full financing is also extremely flexible today. You can choose terms of up to 40 years and, as a borrower, you can determine how long you want to pay off your loan. The same applies – to the appropriate creditworthiness – to be chosen freely for the loan amount.
Tip: Since almost every bank now offers mortgage lending without equity, you can quickly explore the best individual offer and at the same time keep free funds for other investments.
- move into your own four walls earlier
- save high rental costs immediately
- secure historically low-interest rates
- benefit from rising property prices
- secure additional liquidity
What are the disadvantages of mortgage lending without equity?
Financing without equity seems very tempting at first glance. Nevertheless, you should know the various disadvantages well before choosing such a home loan.
These start with the fact that potential prospects without equity in Austria usually simply do not receive a loan. As a buyer or builder, you usually have to provide other collateral. For example, a high and constant income or possibly even a mortgage on your house or apartment.
Further disadvantages are the fluctuating interest rates and high additional costs. In addition, the interest on mortgage lending without equity is generally noticeably higher.
Furthermore, it should be noted: Even if you have been granted full financing by the bank due to its high credit rating, changes in your own income can have serious consequences.
If, for example, borrowers become unemployed or fall ill, the property they buy is sometimes sold – if the mostly high installments are no longer paid off. In this case, you can quickly face high residual debts. Explore the pros and cons before you choose full funding.
Tip: The additional costs are also a decisive factor. Because usually brokerage commission, notary fees as well as the real estate transfer tax and fees for registration in the land register are also due with full financing. Unless you choose so-called 110, 115 or 120 percent financing, which also includes incidental costs.