110 percent financing or. Full financing not only finances the entire purchase price of the property AND all ancillary purchase costs. In practice, however, 110 percent financing and full financing are rarely realized because the hurdles are very high. Prerequisite is a positive risk assessment by the lender, comprehensive collateral and a particularly good credit rating. The moreover appropriate interest mark-ups are required, which makes the construction financing under the line more expensive. In contrast to 110 percent financing, we speak of full financing when the property is financed without equity, but all ancillary purchase costs are covered with equity.
110 percent financing: buying real estate without cash
The ancillary purchase costs, which are also paid with a 110 percent financing by means of a construction financing loan, vary depending on the federal state and can amount to between 7 and 12 percent of the property purchase price. The amount is calculated from the purchase price, realtor and notary, and state-dependent fees, and includes the following:
If you choose standard construction financing and are anxious to keep the interest rate – and thus the borrowing costs – as low as possible, you should generally contribute at least 30 percent of your own share to the total financing of the purchase sum and pay all ancillary purchase costs with liquid personal funds.
The disadvantages of 110 percent financing
- The terms of full financing – that is, the assessed interest rate – are always more expensive than financing with an equity component.
- There are only a few providers for 110 percent financing. In addition, applicants are subject to particularly critical scrutiny.
- Long-term collateral that minimizes the risk of full financing is always necessary.
- In addition, very high repayments are required for full financing, which in turn has a direct impact on the monthly charge.
- The applicant should be completely debt-free, not servicing any other loans, and have an especially good credit rating.
TIP: use the accedo terms calculator to see the dependence of equity and interest rate offered.
Banks reduce default risk with high interest rate surcharges and high repayment rates
Those who can raise less than 30 percent of their own funds for the purchase price of a property usually face a higher interest rate. In the case of 110 percent financing, the bank will charge additional risk premiums depending on the economic circumstances of the borrower's creditworthiness, property value, location and other personal conditions.
This risk surcharge serves as security for the bank: because if the ancillary purchase costs are also financed, the loan amount to be financed often exceeds the value of the property. The risk premium thus protects the bank from the expected difference between the proceeds in the event of a foreclosure and the remaining debt of the loan at the time of insolvency.
Who is eligible for full financing?
In many cases, the "40 percent rule" applies as to whether a bank will even talk to a prospective loan applicant. This "40 percent rule" refers to the fact that the monthly installments for all loans of the applicant must not exceed 40 percent of the monthly income. This caps the maximum amount of credit provided and has the condition that the prospective borrower has an above-average income.
High repayment as a prerequisite for full financing
Banks expect borrowers to make high repayments. Together with the "40 percent rule", the high repayment rate caps the amount of the monthly installment and thus the amount of the loan granted. In this way, banks also ensure that the customers of full financing have a high and, above all, stable income.
Creditworthiness is another hurdle to full financing
The SCHUFA information is also important. The register should not show any negative entries of the prospective borrower. The higher the score, the more likely it is that full financing will be granted. Nevertheless, each bank sets its own additional standards and evaluates the information from the SCHUFA register accordingly.
As a basic principle, you should check your SCHUFA information in advance before making a request for full financing and have any incorrect entries corrected.
How to find a bank for full or 110 percent financing?
Non-bank construction financing intermediaries are a good place to start. These have a daily updated overview of all banks that are basically willing to support construction financing without equity capital.
In addition, it is always worth checking with your own bank. She usually knows her financial circumstances best. One important aspect is that the house bank is aware of the stability of the revenue and has a shared history:
- Have there been any loans in the past that have been serviced regularly??
- Do the data show that you have sufficient money at all times??
Furthermore, seriousness and transparency are required in the application process: applicants should provide the bank with all requested information, hide nothing and always provide relevant information. If irregularities occur in the course of the application process, the discussions are usually terminated immediately.
For banks, 110 percent financing is good business
Informed borrowers create a serious, reliable impression, which signals to the bank that the borrower understands the scope of a full financing package. Therefore, the support of a bank-independent advice and support by a construction financing intermediary as well as the joint search for an appropriate bank is advantageous. In order to obtain full financing sooner, borrowers should finance the ancillary costs themselves.
Those who finance in full must be aware that they often repay their loans for longer, receive a lower interest rate and have to make higher repayments. Accedo AG shows in an example calculation, what a 100% financing with a comparatively moderate credit amount of 220 euros can cost.000 euro means.
Full financing – a sample calculation
- Full financing from 220.000 euros (at the interest rate at the beginning of 2020):
- With 100 percent financing, the borrower is charged 744 euros per month.
- With 110 percent financing – i.E. With ancillary purchase costs – 906 euros a month are due.
- However, if the interested party brings back 40.000 equity capital into the financing and thus needs 180.000 euro loan, he will pay only 574 euros a month – and that over a period of 20 years. In the case of full financing, on the other hand, the term is 35 years.
- It becomes expensive if the full financier wants to part with the property after 15 years.
Although he receives the repaid amount of 73.292 euro – but only under certain conditions – back. From the 55.865 euros in interest costs incurred so far, but sees nothing more. With construction financing at 40.000 euros of equity, on the other hand, he receives at the same time the repaid 101.192 euros again and only has to pay 38.405 euros in interest costs to write off.
Conclusion: financing real estate without equity – an alternative for high earners
Full financing is suitable for borrowers with a high income secured over a period of years, who are also in a position to make high repayments (e.G. B. 10 percent) to be able to live. Another restriction: self-employed persons and freelancers usually do not find a bank that grants 110 percent financing. Younger civil servants in the middle and higher ranks have the best chances here.
If you have a long-term, good and stable income, 110 percent financing may be an alternative. Because of the tax law, which under certain circumstances charges interest on debts, full financing can be useful under certain circumstances. However, this must be discussed in detail with the tax advisor. Also, the construction financing concept is often a mix of different building blocks – and not a "simple" annuity loan. For this reason, it is advisable to seek expert, bank-independent advice for full financing.
Our tip: professional advice is the basis for secure full financing
Full financing costs more. It leads to higher monthly charges. And also causes problems if you sell the property within the loan term. Banks generally only offer 110 percent financing to civil servants and higher earners who have a long-term employment relationship.
It has advantages when a tax-saving concept has been worked out together with the tax advisor, based on the tax deductibility of interest on debt.
In addition, it requires comprehensive construction financing know-how, which not everyone has. Combinations of different financing modules often come into play. In this case, full financing can also contribute to optimized asset accumulation.
