Rent or buy? Tips for the path to home ownership

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Many people are faced with the question at some point: Should I buy a house or apartment for personal use? There is no one-size-fits-all answer to this question, as it depends on a variety of factors such as personal lifestyle, financial means and the current market situation.

Urbyo's financial advisors have years of experience with potential home buyers. So what are the important aspects you should consider? Either listen here or read below. 👇

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Reasons
What you should know
Financing 101
Buy a home?
FAQ

Reasons for buying a house

Of course, this cannot always be generalized for every case. But in most cases, it is one or more of these points that motivate people to buy their own home:

Reasons for home ownership

Offspring: Many families with children want more space and privacy. A house with a garden offers the ideal setting for family time together.
Dead capital: For many people, rental income is "dead capital". It doesn't build up anything, it's simply gone. Buying a house, on the other hand, is an investment in the future.
Retirement provision: Not having to pay rent when they retire is an important goal for many people. A home can provide a solid basis for this.

Three questions you should ask yourself before buying your own home

But of course the motivation to buy a home is not enough. After all, for many people, buying their own home is probably the biggest investment of their lives. And anyone making such a decision should not only have the necessary motivation to do so, but should also take an objective look at their own situation and assess whether it really suits them. In most cases, there are three questions you should think about in advance:

1. Can I afford to buy my own home?

To do this, you should draw up a budget calculation and check how much money you can afford each month for the installment, ancillary costs and any renovations.

2. What criteria matters to me?

It's all about you at this point. While you assess the location of your property as an investment — whether an apartment or an entire apartment building - according to strictly objective standards, this is about your subjective perception of the location. Finally, it's a question of what size and features the house should have. Of course, you should also think back to the first question at this point.

3. Are you ready for the responsibility of home ownership?

Buying a home is a long-term decision that comes with different responsibilities than renting. After all, if something was defective in your rental property, you simply called your tenant and someone took care of it and, above all, covered the costs. It's different with your own home, of course: you should be aware that you are responsible for maintenance and repairs yourself.

Rule of Thumb for Financing Your Home

If you want to buy your own home and know your basic conditions, it's time to start financing. Of course, very few people buy their own home using only their equity capital. And even if you could, it wouldn't necessarily make sense in most cases. You will therefore have to plan for a monthly installment. But you won't be paying any more rent and you'll be paying off your loan.

Nevertheless, you must of course be able to afford the installment. A rule of thumb for the amount of the monthly installment is: approx. 30 percent of your net household income should not be exceeded. A little more buffer is always better, especially when buying your own home. Because remember: You pay for any repairs. But of course, this rule of thumb is not set in stone and should be adjusted individually. It's best to speak to an Urbyo financing professional. Not only can they answer all your questions, they can also find the best deal for you.

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Buy a home? Or continue paying rent?

For many people, buying their own home is a lifelong dream for good reasons and often makes a lot of sense. However, if you are expecting a universal answer at this point, you will be disappointed. This is because the decision between renting and buying is a complex one that should be carefully considered. There is no right or wrong answer, as the best solution depends on your individual circumstances. However, if you decide to buy a house, you should be aware that this is a long-term commitment, but one that brings many benefits and pays off, especially in old age. After all, once you have paid off your loan, you will no longer have to pay rent. If you are still hesitating, Urbyo offers you plenty of opportunities to get information and advice. The best thing to do is to register and take the first steps in a relaxed manner.

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FAQ Buying a home

Can I also contact Urbyo if I buy a property for personal use?

What counts as an ancillary purchase cost?

Ancillary purchase costs include:

the land transfer tax (varies depending on the federal state)
notary and land registry fees (approx. 2% of the purchase price)
the brokerage fee, if any

Depending on what else needs to be done to your property and whether you move into the property yourself, there may be additional costs, such as moving or renovation costs. Ultimately, you can expect additional costs of about 10-15% of the purchase price. As a rule, you have to pay these costs for your own home yourself. For investors, however, full financing is theoretically possible. Your Urbyo financial expert can tell you exactly what you can afford.

At what age should you buy a property?

What is the difference between homeownership and renting a property as a retirement plan?

You do something for your private pension with both options. Homeownership is about finding the perfect property for all stages of life. If you're buying a buy-to-let property, what matters is how much more money you have available each month after deducting the installment payment. Take a look here to discover the most important criteria for homeownership as a retirement provision and for a buy-to-let property as a retirement provision.

Which factors influence my interest rate?

On the one hand, it always depends on your bank, the prime rate, and the economic situation. But there are also a few personal factors that can influence your interest rate:

1. The loan amount

Depending on how much money you want to borrow from the bank, you may have premiums or discounts on your interest rate. For example, some banks charge premiums for loan amounts under 50,000 euros and give discounts for sums of 100,000 euros or more.

2. The loan-to-value ratio

The loan-to-value ratio is nothing more than the financing share, i.e., how much of the purchase price you want to borrow. The higher the percentage, the higher the interest surcharges at the bank.

3. The fixed interest rate period

With construction financing, you can choose how long you want to be tied to the borrowing rate. If you select a long fixed interest rate because the interest rate is low, the interest surcharge will be higher.

4. The property value

The bank looks at the property from various points of view to determine the property value. If the bank thinks the purchase price you pay is too high compared to what the property is worth, there is often an interest surcharge.

5. Repayment & term of the financing

The higher your repayment, the shorter the term of your loan. The bank rewards this with a better interest rate. Of course, only if your repayment rate is realistic and you can afford the monthly costs.

6. Employment

As an employee, you often get a better interest rate than a self-employed person. This is because the bank has much less work to do in checking the loan. In addition, the risk that you, as an employee, will face financial difficulties in the meantime is lower.

7. Your postal code

Depending on where your desired property is located, the bank will evaluate the potential for appreciation. If they feel the value of your property is likely to increase, they will often offer you a better interest rate. In less attractive areas, on the other hand, you may have to accept a higher interest rate.

8. your Schufa-Scora

How reliably do you repay previous loans and other installments? Your Schufa score reveals it. And tells the bank whether they can trust you with a loan. If you have exclusively or predominantly positive entries, that's a good sign for the bank. It does not reflect well on you if you have a negative score or refuse to provide the Schufa information.

9. Commitment-free period & unscheduled repayment

The provision-free period and the unscheduled repayment are special conditions that can be agreed upon with a bank. Some banks will charge a higher interest rate for these extras if you take advantage of these options.

10. Purpose

Owner occupancy, real estate investment, or commercial rental? Banks want to know why you want to buy a property because there are often different interest rates here. For example, the interest rate is often better for owner-occupancy because banks assume you will take better care of your home than an apartment you sublet.

11. Special offers at the bank

If the timing is right, you're in luck: sometimes there are specials at the bank that you can snag if necessary. These include special discounts on specific properties, New Year's specials, etc.

Phew, quite a lot of points. And quite a few banks that you have to compare first.

How are you supposed to find the best offer? Don't worry: Our Urbyo financial experts will handle it for you. They know their stuff and which banks offer you the most attractive and sensible deals.

👉Are you interested in financing through Urbyo? Then feel free to send an inquiry to: finanzierung@urbyo.com or sign up directly for a conversation.