What own funds can be used for the purchase

The purchase of a property can be financed by various means. The decisive question is: Own use or rental? Vacation home or primary residence? Depending on the type of use of the property, the requirements and provisions regarding own funds are different

Owner-occupied residential property

People who want to occupy their property themselves are very free in the choice of their own funds. In addition to the usual own funds, capital from the 2nd and 3rd pillars can also be drawn or pledged. Often this is the only way to raise the required 20% equity capital. This way of raising equity is therefore well accepted by financial institutions.

Vacation properties

Those wishing to purchase a vacation property are faced with different financing regulations. More equity is required and the maximum loan-to-value ratio is between 60% and 70%. Furthermore, it is not possible to finance a vacation home with funds from the 2nd or 3rd pillar.

Investment properties

For properties that are to be rented out, similar loan-to-value principles apply as for owner-occupied residential property. Commercial properties and properties with a high proportion of commercial space are an exception. For these, higher equity requirements apply. Thus, it is quite possible that the bank will only finance 50% of a commercially used property.

What can I do if equity or income is tight:

Check to see if you can increase your equity with the following options:

interest-free loan from a third party with no repayment obligation
Inheritance advance
Pledging of assets
In any case, you must contribute at least 10% of the purchase price yourself as cash or account credit to the financing.

When choosing the appropriate equity capital, it is also important to bear in mind that some financing options are riskier than others. Learn more about the advantages and disadvantages of each financing option here.

Account and securities balances
As a rule, account and securities balances do not pose a problem. They can be used without restriction and without risk for the purchase of a property. However, you should never invest your entire savings in a property. It is worthwhile to retain reserves. After all, when buying an existing property, renovation costs may be higher than expected. Important when pledging securities: Price fluctuations can be dangerous if they cause strong losses in value. In such a case, it is possible that the securities account will have to be closed and liquidated so that the bank has sufficient security again. This can have unpleasant consequences for the mortgage borrower.

Pillar 3a account
Money from the pillar 3a account is primarily used for retirement provision. However, it may be used to finance owner-occupied residential property. It should be noted that drawing this money worsens the borrower’s pension situation. This means that the money cannot be used upon retirement because it has already been invested in residential property.

Pension fund assets
A withdrawal or pledge of funds from the 2nd pillar must also be well thought out. Many people are not aware that a withdrawal of pension fund assets not only has implications for retirement planning. Those who withdraw capital from the 2nd pillar for the purchase of residential property also worsen their financial security in the event of disability or death.

Insurance policy
Insurance policies can also be used to finance home ownership. For example, by pledging them. Most financial institutions do not see any problems with insurance policies with guaranteed capital. On the other hand, it becomes difficult if there is no guaranteed payout sum. As with securities deposits, the same applies here: Beware of price fluctuations and the possible consequences.

Donation and advance withdrawal
For many, only a gift or an advance withdrawal from an inheritance makes it possible to buy their own property. However, if the amount bequeathed is particularly high or exceeds the quota not protected by compulsory portions, caution is advised. If the person who left the money to you dies, the other heirs may have claims. This can lead to problems for the borrower. In the best case, he can cover the claims of the other heirs from his own savings or by increasing the mortgage. If the borrower has no savings and the loan-to-value ratio of the property is already high, the sale of the property is often the only way out. Anyone who wants to finance their own home with money from a gift or an advance withdrawal from an inheritance should therefore have all points checked by a specialist. For example, by a lawyer specializing in inheritance law.

Anyone taking out a loan to finance their own property needs to know: Unless otherwise agreed, a loan can be recalled by the lender at any time subject to a 6-week notice period. A solid basis of trust with the lender is therefore advisable. If one receives the loan from one’s own parents, the risk is low, but not excluded.

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