100 % financing: buying a property without equity

Rents are rising, savings grow more slowly than purchase prices, and the ideal property is already in the listing. Many buyers in Hannover therefore ask us whether financing entirely without equity is possible. The short answer is yes, under certain conditions. The longer answer explains what it costs and when it is really wise.

What 100 % financing is

We speak of full financing when the bank finances the complete purchase price. With 100 percent financing you only cover the additional purchase costs yourself, i.e. real estate transfer tax, notary and possibly the estate agent, together a good 10 percent of the purchase price in Lower Saxony. With 110 percent financing the bank also covers these additional purchase costs, so you really do start without any money of your own. Only a few banks offer this second variant, and only with a very good credit standing.

Who gets full financing

Because the bank bears a higher risk without equity, it checks more strictly than usual. What matters is a secure and sufficiently high income, usually from permanent employment or civil service status, a clean Schufa record and a property that the bank considers to hold its value. A sought-after location such as Hannover-List or Kirchrode helps more than a house with a renovation backlog in the surrounding area. Age also plays a part, because the bank wants to see repayment by retirement, and without equity that takes more years.

Self-employed people with fluctuating income, buyers on probation or households where the instalment would eat up a large part of net income generally do not get full financing. In these cases it is worth building up equity first or strengthening the financing with collateral from the family.

What full financing costs

Banks grade the interest rate according to the loan-to-value ratio, i.e. the share of the loan in the property value. The higher this share, the higher the interest rate. The following premiums over the best rate are typical orders of magnitude that may vary depending on the bank and market situation.

But the interest premium is only half the calculation. Without equity, the loan amount is also higher, and both together drive up the monthly instalment considerably. That is exactly why 100 % loans fail more often on the household budget than on creditworthiness.

Worked example: the same flat, three routes

A flat for €350,000 with €35,000 in additional purchase costs shows how big the difference really is. Three buyers are compared, each with 2 percent initial repayment and a ten-year fixed-interest period. The interest rates are assumptions for illustration; the rule of thumb for the required income sets the instalment at 35 percent of household net income.

The 110 percent financing costs around €73,000 more interest over ten years than the 80 percent variant and requires around two-thirds more income. And after ten years the remaining debt in the land register is still about 82 percent of the purchase price.

The risks you should know about

The biggest risk of full financing is a sale in the first few years. If you have to sell early after a separation, a job change or for other reasons, you have usually repaid less than the additional purchase costs and the early repayment charge amount to. Then a loss remains after the sale. With 20 percent equity, the buffer cushions such situations; with zero percent there is no buffer.

The usual risks also apply, in intensified form. An interest rate increase at the follow-on financing hits a high remaining debt harder. An unexpected repair hits a household without reserves harder. And because the instalment is close to the affordability limit from the start, there is little leeway for parental leave, short-time work or a phase with only one salary.

When full financing is still worthwhile

There are situations in which the calculation works out. Young graduates with a secure, clearly rising salary often have no equity yet, but many years of repayment time ahead of them. Buying a property well below market value, for example from the family, builds the buffer in through the price. And anyone expecting a gift or inheritance in the foreseeable future can plan with unscheduled repayment rights to quickly turn the 100 % loan into a standard mortgage.

In all these cases it is important not to see full financing as a permanent state. A higher repayment of 3 percent or more, annual unscheduled repayments and a fixed-interest period of at least 15 years ensure that the remaining debt quickly falls below the property value and the interest rate risk remains manageable.

Alternatives to full financing

Before you finance without equity, it is worth looking at alternatives. An interest-free private loan from the family counts as equity at most banks and lowers the loan-to-value ratio immediately. For families with children below certain income limits, the KfW programme Home Ownership for Families adds a low-interest component to the financing. Your own labour on the property is credited to a limited extent. And sometimes the best answer is simply to save deliberately for one to two years and then buy with 10 percent equity on much better terms.

How we proceed in the consultation

We calculate honestly with you what full financing would cost in your case and whether it fits your household budget. Of the more than 600 banks in our comparison, only a few offer full financing on reasonable terms, and we know them. If the calculation does not work out, we tell you that too and show you the way to get to your property in a manageable time after all.