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Real estate financing – How to finance your real estate dream | home loan

From a financial perspective, the way to your own home is not a walk for many. Very few finance the purchase or construction of a property purely from their own resources. Equity is regularly too scarce for this. For this reason, this large investment can in most cases only be financed through real estate financing. In this article you can read more about real estate financing in Austria. Among other things, you will learn about the different forms of financing. In addition, at the end of the article we give you valuable tips on how to secure your real estate financing or your income with which you pay your installments.

The financing calculator is operated and made available by Lite Lender. All information therefore without guarantee. Lite Lender is an association of over 30 financing consultants across Austria, who will be happy to advise you personally, transparently and competently on financing. The advantages of unbound financial advice are obvious. As a rule, a single bank has very few financing products or instruments available and often also does not have an independent view of your own individual situation. An unbound financing advisor, on the other hand, knows the advantages and disadvantages of each of many different financing instruments and institutions and can get the best out of your current situation for you.

How does successful property financing work?

How does successful property financing work?

At the beginning of real estate financing, the same question always arises – the question of financial options. To determine what amount can realistically be planned for the construction or purchase of a home, two important factors are the focus of the considerations. On the one hand, this is the existing equity capital, which can flow into the planned real estate financing. On the other hand, the amount of monthly income that can be used to pay off the loan is also important when exploring your own options. It should of course not be forgotten that the purchase price is not the only thing that has to be financed. In addition, there are additional costs such as real estate transfer tax, notary fees and brokerage fees, the interest on the loan and not to forget the costs for moving, furnishing, etc.

Equity

The amount of equity contributed influences the following factors:

  • interest rate
  • repayment amount
  • Repayment period
  • Collateral that must be provided.

The following therefore applies to equity in principle:

The more equity is available, the better. Because regularly the loan will be cheaper. However, this does not mean that the entire available savings and other equity should be used for real estate financing. There should always be a reserve for unforeseen expenses. So that they do not become an unnecessary burden. In addition to savings and Co., equity also serves as equity in the construction or renovation of the future home.

For solid real estate financing, an equity capital of 20 to 30 percent of the expected costs is usually necessary. Full financing without any equity capital is only possible in exceptional cases. In such cases, however, due to the higher risk for the bank, the loan interest and thus the monthly installments are correspondingly higher.

The monthly payments

The amount of monthly payments is based on the borrower’s regular monthly income. In order to determine a realistic amount, it is first of all important to deduct all existing fixed costs from the regular income. The entire year should be considered so that in addition to the monthly fixed costs, regular payments that are only made every quarter, half or all year (for example for insurance) are not forgotten. And here too, as with equity, it is important to plan a safety buffer for unforeseen expenses (for example for the repair of washing machines, cars, etc.).

Possible grants and co.

In addition to the possible amount of equity and the monthly payments, possible subsidies should not be neglected when planning real estate financing. In Austria, the construction of housing is favored by the housing subsidy. As part of this, not only new buildings, but also conversions, additions and renovations are funded. The type of housing subsidy depends on the respective federal state. For example, cheaper loans, grants for loan repayments, one-time grants, or support in the form of guarantees are possible.

In order to save costs, it is also very important not to accept the first financing offer. It is better to get various offers. Because your own house bank does not always offer the cheapest option. However, only reputable providers should be used.

What forms of financing are there?

What forms of financing are there?

There are many different forms of financing available for real estate financing in Austria. Often, several forms are combined with one another in home or construction financing. The following financing products are conceivable, for example:

  • Mortgage loan
  • Residential Home Credit
  • Building loans
  • Residential account.

Classic form of real estate financing: mortgage loan

In many cases, a mortgage loan is taken out to finance a property. This type of loan is usually designed for a long term. In many cases, the terms are between 20 and 30 years. The term “mortgage loan” already includes an essential property of this type of loan. With this form of loan, a mortgage is ordered as security and entered in the land register. If the loan can no longer be serviced at some point, the lending bank has a right to use the property. This means that the bank can monetize the property to repay the outstanding balance.

A major advantage of mortgage loans is that they often score with a relatively low interest rate compared to other forms of financing. The reason for this is the mortgage protection just described, which means that the credit risk for the bank is relatively low. In addition, the borrower has the option to opt for a fixed rate. Then the interest is fixed for a certain period and may not be changed during this time. However, the fixed interest rates are extremely rarely agreed for the entire term of the loan, but often only for a period of ten or 15 years. As a result, the borrower bears an interest in interest rates that is not to be despised. An alternative to the fixed interest rate agreement is a variable rate agreement. With this form of interest, the interest is adjusted to the respective market conditions and can therefore become more or less expensive.

In the case of real estate financing through a mortgage loan, there is also a regular repayment settlement. In most cases, billing is done monthly or quarterly. This means that the interest portion of the monthly installments is getting lower and the repayment portion is getting higher because interest is not permanently paid on the original loan amount. It is also advisable if the borrower enters into an agreement with the bank on special repayment options so that special repayments can be made in the event of an inheritance, for example.

For young people and families: home loan

The home loan is aimed primarily at young people and families, but all other borrowers can also use this real estate loan for real estate financing. A special feature of the home loan is that it is mostly repayment-free in the first few years. The advantage of this is an enormous financial relief in the first time after taking out the loan. In some cases, interest payments are even dropped in the first two to three years. Then no repayments have to be made during this time. This avoids double loads. This benefits, for example, families in which a parent is still on parental leave, young people who are just beginning their careers, or borrowers who are still renting at the time of building the house and want to avoid a double burden.

Preliminary financing: home loan

Home savings loans are granted as part of a home savings contract if a certain minimum value is saved. A big advantage of this form of financing is the fixed loan interest, which cannot change during the entire repayment period – i.e. it cannot increase. In addition, free special repayments can normally be made at any time, which can shorten the remaining term of the loan. In addition, interest rates are usually quite cheap. However, this advantage is put into perspective in low-interest phases. Then the disadvantages come to the fore. A home loan is not immediately available and therefore requires a longer lead time. It is therefore not suitable for spontaneous real estate financing. Another disadvantage is that with some tariffs, relatively high monthly repayments have to be made.

A kind of framework credit: housing account

A housing account for real estate financing is also particularly suitable for the construction of a property. With this form of financing, a special account is created. The entire loan amount is made available on this housing account. The amounts of money can then be called up gradually, as with a framework loan, to process various payments for the construction. In this way, the housing account offers flexibility and individuality. In addition, housing accounts are mostly inexpensive and have relatively low interest rates.

Also important: securing real estate financing

Also important: securing real estate financing

When buying or building a property, it is not only important to insure it against damage. If there is financing, this should also be covered by appropriate insurance. The focus should be on securing the income with which the monthly loan installments are paid. The focus is on three cases:

  • unemployment
  • disability
  • Major donor dies

A possible loss of job can lead to the loss of the monthly income that is used to pay the installments. That should be taken into account when real estate financing. Protection in such cases is provided by unemployment insurance.

Due to an accident or illness, it can also go beyond temporary unemployment and incapacity for work. In order to be adequately protected against loss of income in this case, disability insurance should be taken out. This closes the income gap that arises in such cases, which means that the monthly loan installments can continue to be paid.

In the third, and worse, life insurance provides protection. If the main donor dies, there is a fundamental risk that the loan installments can no longer be paid due to the loss of his income. Unfortunately, the result is often that the partner and the children not only have to cope with the death of a loved one, but also have to move out of their own home. Life insurance protects against this by paying the agreed sum insured to the beneficiary. This money can then be used for further repayment, which means that real estate financing remains secure.