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The biggest myths about mortgage lending

The dream of many people, a thatched roof house on Sylt

If you want to put down roots on Sylt and don’t just want to rent, you have to buy real estate, for example in the form of a condominium or a house. However, this usually turns out to be anything but cheap. You have to calculate an average of around 13,200 euros per square meter for an apartment. For a house you pay more than 18,700 euros. While you pay an average of around 3,300 euros per square meter for a property in Germany. You will not be able to avoid financing for a property on Sylt. However, you should be careful here. There are a lot of stories and myths about mortgage lending.

How is the real estate situation on Sylt?

Real estate prices on Sylt are exploding. It is true that condominiums and houses in Germany are always more expensive, especially on the German islands. On average, prices on the North Frisian Islands increased by more than 17 percent in the first quarter of 2022. They are currently at 14,115 euros per square meter.

But Sylt is far ahead here. The demand for real estate is high among buyers. Sylt is in demand like never before. Here, an average house costs around 18,740 euros. This price is about 22 percent higher than last year’s price.

The reduced offer is probably responsible for this. Only around a third of the properties are still on the market. So larger loans have to be taken out in order to get a house on Sylt. Here, however, you should not be fooled by common myths.

Requirements for building finance

However, before we get into the myths, we would like to clarify the basic requirements that you have to meet for a real estate loan.

The most important requirement for a loan in general is that you must be of legal age. Only when you have turned 18 are you considered to have full legal capacity and are therefore only allowed to conclude credit transactions. However, age often plays another role: you must not be too old to apply for a real estate loan.

Another basic requirement is an address with a German main residence. A German bank account is also mandatory. In addition to these three basic requirements, the various banks have guidelines that can vary.

This often includes a regular and secure income from permanent employment, which you have to prove with payslips and/or bank statements. It is important that you are not in the probationary period or in an apprenticeship. Sufficient creditworthiness, capital investments and other securities are often also required.

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If you are now interested in mortgage lending and you meet the requirements, you should not be deceived by any myths.

Infographic smavaMyth: The house bank makes the best offer

You have been a customer of your personal house bank for many years. You have certain people that you can always reach out to. So it makes sense that the first place to go is to go to your house bank when you are looking for suitable financing. After all, your loyalty must be rewarded.

Unfortunately, the reality is usually a little different. You can often find significantly cheaper offers if you compare the credit rates of different banks. Take a look online for more information. Here you will find countless banks that offer you construction financing on favorable terms.

It is best to use one of the comparison portals to keep track of the many offers and simply choose the right offer for your property on Sylt.

Myth: Age doesn’t matter when it comes to financing

As we have already learned from the basic requirements for a loan, age does play a role in the granting of loans. However, the issue of ageism in the media is quite a big topic. Older people have a rather low chance of large loan amounts in particular, as it poses a risk for the banks.

The borrowers could die before the loan is fully paid off. This risk for banks is understandable, especially in the case of construction financing that runs for several decades. As a rule of thumb, the property should be repayable until you retire.

In addition, we have already learned that there is also a minimum age when it comes to loans in general in Germany. However, you can cheat a little here. For example, the parents could take out the loan or you could bring in someone who would take out the loan with you.

Myth: Self-employed people don’t get credit

While it can be difficult for people who are self-employed or freelance to get a loan, it is not impossible. However, the bank will take a particularly close look at your financial situation.

Ideally, you have been self-employed for a long time, at least three years. You should also be able to demonstrate a good income with little fluctuation. Then you are more likely to get a loan with favorable terms.

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The income tax notices for this period, the respective annual financial statements and a current business analysis serve as evidence. In addition, you should have an impeccable Schufa score and be generally creditworthy. However, the last two points can be improved with very simple means to increase your chances of cheap construction financing.

Myth: Mortgage financing is expensive and takes too long

Basically, you have these two factors in your own hands. In general, construction financing is even cheaper compared to other types of credit. After all, you are investing in a real value, i.e. the property. Depending on its location, condition and type, it is likely to increase in value in the future. Of course, this means a lot of security for the bank. The bank rewards you with this security with lower interest rates.

You must determine the term of the loan yourself. It not only depends on the loan amount, but also on the interest and the financial leeway that is available to you each month.

You can also actively influence the term by using equity or work. Unexpected blessings, for example from an inheritance, can also shorten the loan term, but you can usually not plan for this factor.

Myth: The Schufa has a great influence

Credit bureau can influence lending, but its influence is usually estimated to be greater than it actually is. You can also have a say in your Schufa score.

Before you apply for construction financing, you should request your data from the Schufa and check it for accuracy. Have incorrect or outdated entries deleted. You should plan this deletion in good time, as it can take up to three months for the data to be updated. The Schufa only does this once a quarter.

If you are interested in a loan offer, do not apply for it directly. Rather make a non-binding request for conditions. These inquiries are not reported to Schufa. Consequently, it does not affect your credit rating.

Myth: Nothing works without equity

Bild 2This myth persists, especially when it comes to mortgage lending. But you can also take out a loan without equity to finance a property. However, this affects the terms of the financing and its overall term. In addition, you must then be able to demonstrate impeccable creditworthiness.

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However, the more equity and personal contribution you bring in, the cheaper the loan will be for you. Ideally, you should contribute around 10 to 30 percent of the purchase price to the financing.

If you do without equity, you have the option of full financing or purchase price financing. With the latter, you only pay off the real property price via a loan. The full financing also covers the additional purchase costs.

Myth: Buying is more expensive than renting

That’s not necessarily true. When you rent, your money is gone. Although you have a roof over your head, you can no longer benefit from the monthly payments later. For this reason alone, buying is generally cheaper than renting, since you do not lose most of the money you put into the property.

If you look at the monthly financial burden, it may well be that the loan installments are more expensive than your previous rental costs. There are also ancillary costs that you should also not forget, such as residential building or household contents insurance as well as higher energy and water costs. This is especially the case when you move into a house.

Myth: We can still benefit from low interest rates for a long time

We are currently still in a phase of low interest rates. However, it is still unclear how long this will last. Inflation, the war in Ukraine and other factors are putting increasing pressure on the ECB. You could possibly raise the key interest rate again in the near future. This in turn affects the debit interest on a loan.

So secure yourself a cheap building loan while you still can. Make sure that the interest rate is fixed for as long as possible so that you can continue to benefit from the favorable conditions in the future.

Compare loans and fulfill your dream of a house on Sylt

If you want to fulfill your dream of owning your own property on Sylt, you should definitely do some research beforehand. Ask yourself whether you meet all the requirements for mortgage lending and whether you can handle them in the future. Use credit comparisons to find the right offer for you. Admittedly, a property on Sylt is not cheap, but it is definitely worth it.

Image 1: Sylt TV

Image 2: unsplash.com, © micheile dot com

Infographic: © smava.de

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