The optimal financing for your property - Part 3
Mortgage lending value calculation and loan-to-value ratio and lending limit30.05.2020
The mortgage lending value is the value of the collateral, i.e. for real estate loans the value of the property that can be expected to be maintained in the long term with a high degree of probability
This means that the bank must therefore examine the current and future sale value of the property. The bank deducts a certain discount from the mortgage lending value to minimise risk. It is intended to cover the risk of impairment due to market and other external factors. Each bank decides for itself how high the risk discount is. As a rule, it is between 40 and 80 percent. It uses this difference between the mortgage lending value and the risk discount to calculate the lending limit for the property. It also represents the maximum amount for which the bank will grant you a loan as part of your mortgage. The following lending limits are standard practice at banks:
40-60 % for life insurance
60-65 % for mortgage banks
80 % with savings banks, Volks-, Raiffeisen- or commercial banks
It is rather rare for loans to be granted in the full amount of the mortgage lending value. If they are, the bank can pay this higher risk with a higher interest rate.
Market value of the property 100.000 €
Mortgage lending value 80,000 € (80 % of the market value)
Mortgage lending limit 56,000 € (70 % of the mortgage lending value)
With these values, you will have a loan amount of 56,000 euros, which the bank will grant you for your construction financing. To calculate the potential loan amount, you multiply the market value of the property by the mortgage lending value in percent. You then multiply the amount by the lending limit in percent.
Mortgage lending value vs. loan-to-value ratio
The loan-to-value ratio, in turn, is a percentage figure. It indicates the ratio between the loan taken out and the collateral value. The bank uses this percentage figure to determine the interest rate for your loan. The higher the number of the loan-to-value ratio, the higher the debit interest rate of the loan agreement. If the loan-to-value ratio is up to 60 percent, the bank will give you the best conditions, as you contribute more equity to the financing. This lowers the bank's risk, which it rewards with better interest rate conditions.
The loan-to-value ratio is calculated as follows:
Market value 100.000 €
Mortgage lending value 80,000 € (80 % of the market value)
Amount of the loan 56.000 €
Equity capital 10.000 €
Loan amount after deduction of equity 46,000 €
Loan-to-value ratio = loan amount after deduction of equity X 100 / lending value
With this calculation, the figures in our example result in a loan-to-value ratio of 39 percent. In financial jargon, this means that the loan-to-value ratio is 57.5 percent.
Part 4: The documents
This section is intended to give you an overview of the most important documents and tips on how they should be submitted.
Basically, the documents must be legible, complete and not blackened or otherwise edited.
The personal documents include at least
- Copy of identity card/passport, front and back
- Last 3 pay slips ( for civil servants last pay slip + proof of
amount the contribution of private health insurance)
- For self-employed persons: last two income tax returns and assessments (max 24 months old) +
- Complete statements of the salary account of the last 4 weeks
- Loan agreement and annual statement of account for personal loans
- Current pension information
- Last status report for private life and/or pension insurance
- Statements of equity
- In the case of existing real estate property: List of real estate with address, type of property and living space, copy of loan agreements and annual account statement, if applicable rental agreements and account statement as proof of receipt of rental payments (additionally, if the existing property is to serve as additional collateral, the property documents listed below)
The object documents include at least
- Current extract from the land register (not older than 3 months)
- Current field map
- Dimensioned floor plans, sectional drawings
- Calculation of living space
- Photos from inside and outside
- Exposé if possible
- List of the modernisations carried out over the last 20 years
- List of the planned (co-financed) modernizations (from 40.000€ is additionally the confirmationof the costs by an architect or building expert is necessary
- List of planned internal activities
- Notarised purchase contract or personalised draft purchase contract
This list is of course not exhaustive. The Bank reserves the right to request further documents during the audit. In general, you should take care to present and substantiate your personal situation as accurately as possible.
You should obtain the property documents from the owner or estate agent, if necessary on request. If not, it is best to discuss this with your advisor or the bank to see how you can proceed. Finally, you should keep the following in mind when considering the documents and, if necessary, requests from the bank. If the bank asks for documents or complains about their quality, it is not because the bank wants to harass you!
The bank is legally obliged to check the documents in detail. Not only to minimize the risk for yourself, but also to protect you from making the wrong decisions and the financial consequences.
In general, I can only recommend that you entrust your financing application to a professional.
He will discuss the individual financing options with you in detail using your specific example, find the best possible bank for your case and prepare the documents for the bank with you. In addition, he will accompany you during the payout process and will be available to answer your questions on a daily basis.
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