Everything you need to know about equity in construction financing - 5 important things you need to know

Everything you need to know about equity in construction financing - 5 important things you need to know

According to a report by www.n-tv.de, equity is a crucial factor for building financing. There are five important things to know about equity: the amount of equity, what it includes, how to liquidate it, whether you really need to use it, and how to increase it.

Most banks expect property buyers to finance the additional purchase costs entirely with equity, which usually amounts to ten to twelve percent of the purchase price. In addition, at least 20-25% of the purchase price should be contributed as equity in order to obtain the best conditions. 100 percent financing has a higher interest rate than 70 or 80 percent financing, which affects the lender's security.

Equity includes money in accounts, stocks, funds, savings from building savings contracts, subsidies, employer and private loans, valuables, life insurance and debt-free building plots.

When liquidating investments and assets, one must be aware that losses may occur. Equity does not necessarily have to be used, but rather serves as security for the lender. However, additional purchase costs usually have to be available as equity.

There are various ways to increase equity, such as loans from friends and relatives or gifts from parents and grandparents, which can be tax-free.

By taking these aspects into account, you can optimize construction financing and fully exploit your own options for raising equity. This is crucial in order to obtain the best possible conditions for construction financing and to increase the security of the lender.