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financing house purchase
Do you dream of owning your own home, but the financing seems complex? Solid planning and knowledge of the current conditions are crucial for a successful home purchase. This article shows you how to optimize your financing and avoid pitfalls.
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A solid equity base of at least 20-30% of the purchase price, including ancillary costs, is crucial for favourable financing conditions.
Compare interest rates and terms from over 400 banks, as even small differences can mean savings of several thousand euros.
Take advantage of government subsidies like KfW programmes (e.g., up to €100,000 through the home ownership programme) to reduce the financial burden.
Purchasing a property is one of the biggest financial decisions in life. With fluctuating interest rates and a variety of financing options, many people wonder: How can I best manage the financing for my house purchase? A careful budget calculation, sufficient equity, and comparing loan conditions are essential. Government subsidies can also ease the financial burden. With the right strategy and informed knowledge, you can turn your dream of owning a home into reality. Find out here what you need to pay attention to.
Before you take concrete steps towards the financing of your home purchase, it is essential to honestly assess your financial situation. How much equity can you contribute? Experts recommend covering at least the ancillary purchase costs, which can amount to up to 15% of the purchase price, from your own funds. A solid equity ratio of 20% to 30% of the total purchase price not only improves your negotiating position with banks but also reduces the financing risk and often the interest rate.
Create a detailed household budget to determine your disposable monthly budget for the loan instalment. Banks often allocate a maximum of 35% of the household net income for the monthly repayment. Also, include a buffer for unforeseen expenses or future life changes. A financing calculator can help you to get an initial assessment of your options. This solid foundation is crucial to find the right loan amount and instalment level for your needs.
The cost of house financing is primarily determined by the nominal interest rate. Currently, top rates for house financing, for example, range between 3.09% and 3.93% (as of 04/06/2025). Even small differences in interest rates can mean savings of several thousand euros over the term. Therefore, comparing over 400 banks and lenders can be worthwhile.
Pay attention not only to the nominal interest rate but also to the effective interest rate, which already includes most additional credit costs. Other important conditions are the duration of the nominal interest rate fixation, options for unscheduled repayments, and changes in the repayment rate. In times of generally stable or slightly declining interest rates, a shorter fixed interest period of, for example, 10 to 12 years might be sensible, allowing more flexibility to respond to market developments after expiry. Professional financial advice can help you find the optimal offer for you.
In addition to the pure purchase price, various incidental costs are incurred when acquiring property, which can often account for 10% to 15% of the purchase price. Ideally, these should be covered by equity. The main incidental costs include:
Real estate transfer tax: Depending on the federal state, this amounts to 3.5% to 6.5% of the purchase price. For example, in Bavaria and Saxony it is 3.5%, while in North Rhine-Westphalia it is 6.5%.
Notary and land registry costs: Around 1.5% to 2% of the purchase price is incurred for the notarisation of the purchase contract and the land registry entry.
Broker commission: If a broker is involved, their commission can be up to 3.57% (including VAT) of the purchase price for the buyer, depending on regional practices and agreements. Since 2020, it is often common for broker costs to be shared equally between buyer and seller.
Additionally, costs for experts (around 500 to 1,500 euros), financing fees, or moving and renovation costs can arise. A precise listing and calculation of these items is essential for realistic financial planning. Having a clear understanding of the required documents can expedite the process.
The state supports the acquisition of home ownership through various funding programs that can simplify your financing when buying a house. The Kreditanstalt für Wiederaufbau (KfW) is a key resource in this regard. They offer low-interest loans and sometimes repayment subsidies for various projects. These include for instance:
KfW Home Ownership Program (124): Up to 100,000 euros loan for the purchase or construction of owner-occupied residential property.
Climate-Friendly New Construction (297, 298, 300): Promotional loans for the construction or first-time acquisition of energy-efficient new buildings, often focused on families. The income limits for families have been raised to 90,000 euros gross annual income for a family with one child under the 2024 "Home Ownership for Families" (300) program.
Age-Appropriate Renovations (159): Loans up to 50,000 euros for measures to reduce barriers.
Energy-Efficient Refurbishment (e.g. KfW 261): Loans and repayment subsidies for refurbishment measures that lead to an efficiency house standard (up to 150,000 euros loan per residential unit).
Federal states and municipalities also offer their own funding programs. Additionally, there is support for building equity, such as the housing premium or the employee savings bonus. Early information on suitable sources of financing and funding opportunities, for example via the ImmoGPT chat from Auctoa, can significantly reduce your financial burden.
Various loan models are available for the financing of your house purchase. The most common form is the annuity loan. With this, you pay equal monthly instalments over an agreed fixed interest period (often 10-15 years), consisting of interest and repayment portions. With each instalment, the remaining debt decreases, meaning the interest portion decreases and the repayment portion increases.
Another option is the full repayment loan, where the entire loan amount is completely paid back within the agreed term, so no follow-up financing is necessary. For security-oriented buyers, a building savings-based financing can also be interesting: You combine an advance loan with a building savings contract which later serves to repay the loan and often offers favourable interest rates for the remaining debt. The choice of the right type of loan largely depends on your individual financial situation and risk tolerance. An expert consultation such as that provided by Auctoa can help you find the optimal structure for your property financing.
The duration of the fixed interest rate period is an important decision when it comes to the financing of your house purchase. In times of low interest rates, a long-term fixed rate of 15, 20, or more years can be sensible to secure favourable conditions in the long run. Currently, with moderate interest rates around 3-4%, many borrowers choose a fixed interest rate period between 10 and 12 years. This offers a compromise between planning security and flexibility for a potential follow-up financing at potentially changed market conditions.
The initial repayment rate significantly influences the overall term of your loan. A higher repayment rate (e.g., 2-3% p.a. or more) leads to faster debt freedom and lower total interest costs. While a lower initial repayment of, for example, 1% reduces the monthly burden, it extends the term and increases interest costs. Weigh your monthly financial capacity against the desire for faster debt relief. The option for free special repayments, often 5% of the loan amount per year, offers additional flexibility. Consider using your own capital for land purchase to reduce the loan amount from the outset.
A solid financing for house purchase also takes unforeseen events into account. What happens if income decreases due to unemployment, illness, or an accident? A term life insurance can ensure that your dependents can continue to pay the instalments or repay the loan in the event of death. The insurance sum should at least cover the remaining debt.
A disability insurance is also an important component to be able to pay the monthly instalments even during longer periods of income loss. Also, check whether your home financing includes options such as a repayment rate change to temporarily reduce the rate during financial constraints. A reserve of 3-6 months' salary in a savings account for unforeseen repairs or expenses on the house is also recommended. An accurate property financing and knowledge of possible risks with property loans are also part of comprehensive planning.
The financing of a home purchase is a complex project that requires careful preparation and informed decision-making. From realistic budget planning, comparing loan terms and considering all additional costs to taking advantage of government grants – every step counts. An equity ratio of at least 20-30% is often a good guideline. Remember that even small interest rate differences can have a significant financial impact over the years.
A professional, neutral evaluation of your desired property by Auctoa can provide you with additional security in your purchase decision and setting the financing framework. Use interactive tools like our ImmoGPT chat to quickly clarify initial questions. With a well-thought-out strategy and the right support, nothing stands in the way of your dream of home ownership. This way, you secure long-term financial stability and enjoyment of your property.
The Statistisches Bundesamt offers comprehensive data on construction prices and the property price index in Germany.
The Bundesbank provides statistics on interest rates for housing loans to private households.
The KfW provides information on funding programmes for the construction of owner-occupied residential properties for private individuals.
The Verbraucherzentrale offers expert knowledge and practical tips on construction and property financing.
In the Bundesbank’s residential property market indicator system, you can find detailed interest rates for housing loans in Germany.
The Bundesministerium der Justiz provides information on online access for viewing land registers.
The Bundesbank analyses the price trends of residential properties and the rental market.
What is more important: low interest rate or high repayment?
Both are important. A low interest rate reduces the overall costs. Higher repayments shorten the term and also lower the interest costs. The optimal balance depends on your financial situation and risk tolerance. A repayment rate should not exceed 35% of your net income.
How long should the fixed interest rate period be?
During low interest phases, long fixed-rate periods (15+ years) are attractive. With moderate interest rates (currently around 3-4%), many choose 10-12 years for a compromise between security and flexibility.
Can I finance a house without capital?
Financing without capital (full financing) is theoretically possible, but riskier and leads to significantly higher interest rates and repayments. Most banks require capital at least for incidental costs.
What role does SCHUFA play in house financing?
The SCHUFA report is an important factor for the bank in assessing your creditworthiness. A good SCHUFA score can lead to better interest conditions.
What happens if I can no longer pay the repayments?
Speak immediately with your bank to find solutions such as deferral or adjustment of the repayments. Insurance like life or disability insurance can help preventively.
How can Auctoa assist me with house financing?
Auctoa offers AI-powered property valuations that provide you with a realistic assessment of the property's value. This is an important basis for your financing discussions. Our ImmoGPT-chat can also answer initial questions about financing.
