Attaining the Dream: A Guide to Home Ownership in Germany
Yearning for a Place to Call Your Own?
In the heart of Europe, owning a home has been a coveted dream for many a German. However, the ever-increasing property costs and interest rates can make the goal seem distant and unattainable. But fear not! Here are some handy tips to help make that dream a reality.
The Elusive Desire of Home Ownership
Many young individuals still harbor the dream of owning a home. With over 80% of 18 to 44-year-olds sharing this aspiration, according to a Forsa survey commissioned by the German Real Estate Association, it's clear that the desire for a nest of our own is deeply rooted. The constant rise in real estate and construction costs, coupled with financing interest rates, make the journey challenging. The study reveals that lack of equity and insufficient income are the primary obstacles.
In the past, obtaining this objective often meant sacrificing comforts such as dining out, costly hobbies, or multiple vacations a year. The determination to own a home led people to make such sacrifices, willing to make compromises to save for their dream.
Rooting for a Home of One's Own
But why do we yearn for home ownership? It's not just about material possessions—it's about well-being. According to psychologist Michael Alexa, we seek security, stability, and control over our immediate environment. "Owning a home fulfills this deeply ingrained desire," he explains. Beyond the practical aspects, home ownership symbolizes status and success, elevating the prestige of owning over renting.
A Changing Landscape
As we move forward, Alexa observes a shift in perspective. A study by the Munich-based Schoerghuber Group supports this, finding that younger generations prefer to rent and maintain mobility. In this new era, the value placed on owning a home is changing, and it is crucial to be honest about your motivations and life plans when considering home ownership. Ask yourself if you truly desire a home, or if you'd prefer to travel, work abroad, or consider alternative living arrangements.
Unlocking Hidden Financial Sources
If you decide to take the plunge into homeownership, overcoming financial hurdles is key. Here are some tips to bridge the financing gap with minimal effort:
Tip 1: Maximize your building society contract (Bausparvertrag). Even if ineligible for allocation, such contracts can still prove helpful. By taking out a small loan on the contract, you can secure several thousand euros, depending on the building society contract. Banks generally provide loans of 60 to 80 percent of the already saved balance. The allure of this option is that no additional security is required, and it can improve your position with first-ranking financing banks, resulting in better terms, explains Detlev Schmidt, a coach for property buyers and sellers.
Tip 2: Use the equity of others. Parents who already own a paid-off property but still have a mortgage entry in the land register can help finance their children's housing dreams. The charm of this option is that "the first-financing bank evaluates the entry like equity," says Schmidt. Transferring the entry saves the costs of a new mortgage, but parents are liable if the children's financing fails.
Tip 3: Draw from your Riester (pension savings) contract. Withdraw funds from an existing Riester contract to purchase or build a self-used property. The advantage of this option is that the money is paid out tax-free, and the Riester contract continues to run.
Tip 4: Optimize your equity. Each bank evaluates equity differently, affecting both the height of securities required and the interest rate of your loan. Shop around for the best deals as there can be differences of up to one percent, according to mortgage financing expert Olga Magunia.
Tip 5: Ask for a helping hand in the family circle. Parents, grandparents, or siblings may be willing to lend a hand with a down payment or other housing costs.
Tip 6: Combine available financing options. The impact on your financing depends on your specific case.
When evaluating your income, financial institutions often employ flat rates, including for living expenses and ancillary costs that vary between institutions. This may lead to missed loan opportunities despite a good income. It's essential to compare offers and seek independent consultations to better understand the internal standards, making you a more attractive buyer for real estate agents and sellers.
Establish personal relationships with real estate agents as early as possible, giving you a better chance of viewing properties before they even go online. Sometimes, less is more, and it may be worthwhile to consider going for a smaller home, renovating a pre-existing property, or exploring alternative living arrangements. By taking a more practical and flexible approach, you can make homeownership a reality without breaking the bank.
- In the process of achieving home ownership, it's crucial to explore various financial strategies. Unearthing hidden resources such as maximizing building society contracts, using Riester (pension savings), or leveraging the equity of others can help bridge the financing gap.
- When shopping for a home, maintaining a realistic and flexible approach can lead to better opportunities. This might involve considering smaller homes, pre-existing properties for renovation, or alternative living arrangements.
- As the value placed on home ownership evolves, it's essential to scrutinize one's motivations and life goals. Understanding whether the desire for a home is driven by comfort, lifestyle, investing, finance, home-and-garden, real-estate, or community policy is crucial when deciding to embark on the home ownership journey.
