Complete guide about Important of financing plan: Financing plans support investors in planning a real estate acquisition(investment real estate). The focus is on checking the profitability of a loan.
The financing plan is one of the most important tools in planning major investments. It compares the available funds with the costs incurred. By listing all the important details, you minimize the risk of facing unexpected costs in the end. The aim is to calculate the correct amount of funding. As mentioned above, available equity is offset against the costs incurred in order to finally fill the financing gap. On the basis of this, a decision can be made on the viability of the loan.
It is important to note that the borrower is able to make the planned repayments including interest. In addition, consideration should be given to the possibility of special repayments, if this is possible. Banks also use financing plans. They often simplify loan commitments and significantly reduce the risk of default simplistic. A good financing plan can thus also obtain better interest rates in negotiations with various credit institutions.
As mentioned above, a financing plan compares equity with the cost of buying real estate. All costs that cannot be covered by equity are the financing needs of the investor. In addition to savings, equity also includes income and owner-octopus services by the buyer. All self-performed renovations can count as their own contribution. For example, laying a floor covering.
The budget provides an insight into all the borrower’s income and expenditure. Monthly income from salaries is offset against the running costs of the budget. These include rental costs, electricity, food costs (extrapolated to the personal household) and insurance. After all costs have been deducted from the income, one gets a monthly, freely available, room for manoeuvre. Taking into account a small buffer, this margin of manoeuvre represents the possibility of repayment of loans in the form of loan instalments.
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The next important point in the preparation of a financing plan is equity. All available funds of the investor are taken into account here. This includes inheritances, savings, overdue building savers and, as already mentioned, recoverable own services by the borrower. Existing equity, in addition to the amount of financing, also reduces the interest rate offered by the banks. For example, loans up to 40 of the purchase price of the property will be subject to a lower interest rate than loans that are higher. Another positive aspect of equity is risk reduction during the loan term. The higher the funds available, the lower the loan rate to be paid. Banks often reward this with lower costs. Nevertheless, as an investor, you should not contribute all the equity capital to the purchase of the property. A sufficient reserve provides protection against unexpected costs, such as a defective washing machine.
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Many details must be taken into account when drawing up a financing plan. Since these quickly become confusing for many laypeople, it is advisable to consider advice from a financial expert. Most borrowers rely on the bank adviser. If you want to be on the safe side, however, you should get several financing plans from different agencies. This way you can knock out the best price/performance ratio. As a financial professional, you can also create a financing plan for yourself.
This will take better account of one’s own wishes and identify the available resources first-hand. Nevertheless, for safety, one should have an expert look over it again, so that no important aspect such as the amount of the repayment rate is miscalculated. Among other things, online calculators provide help with the creation. You can use it to map the budget accounting and cost determination. However, when it comes to creating a financing plan taking into account all the important factors, there is no way around self-research or professional advice.
Once the budget has been drawn up and equity capital is determined, all costs must now be identified. On the basis of these figures, credit requirements are determined at the end.
But beware: it is not only the purchase price of the property that represents all costs associated with the purchase. There are considerable incidental costs when buying a house. This includes notary costs, brokerage costs, fees at the Land Registry Office, land transfer tax, etc. Once all costs have been recognised, the financing requirements arise after deduction of equity capital. In this way, a rough assessment of the economic viability of the loan can be made. For this purpose, the resulting financing needs are divided by a realistic duration of about 30 years. The result is divided by 12 by calculating a guideline for the monthly repayment, without taking into account the interest to be paid. If the amount calculated is already above the available funds, it looks rather bad for a loan permit.
Before completing a financing, you should make a plan as an investor as to how long the repayment of the loan can take maximum. Financial experts recommend a term up to a maximum of retirement. In this way, the loss of creditworthness due to too low pension income is prevented. Of course, the timing of the start of financing also plays a part in this decision.
Banks also take into account the age of their customers and try to keep maturities as low as possible as investors age. Older borrowers can also have higher repayment rates due to higher incomes.
Government support in the form of loans usually has much lower interest rates. For this reason, construction finance is not just a credit from a single credit institution. A common form is the combination of a main loan from the bank, a building-saving loan from the building society and a promotional loan. For this reason, it is important to consider the possibility of state support when drawing up a financing plan. Those who build particularly energy-efficient energy efficiency are usually rewarded by the state with cheap loans. The contact person in this case is the Kreditanstalt für Wiederaufbau (KFW). The state-owned credit institution offers considerable subsidies, especially for new buildings. In addition, it is often worthwhile to ask the city or municipality, which often offer different support programs. Another alternative is the residential giant. The capital consisting of a residential giant can be included in a construction financing in the form of equity capital.
The higher the repayment, the faster you are debt-free again. However, it should not be forgotten that this also increases the monthly burden. Often, however, the bank takes the decision on the correct level of tincy. It is not uncommon to estimate a repayment rate of at least 2-3 percent. In principle, it is important to plan the financing in such a way that the borrower gets through well with his financial resources even under the burden of a loan rate.
As a borrower, it is also advisable to have a repayment plan handed over by the bank. All monthly instalments are broken down during the loan term. The interest and repayment shares associated with each instalment payment can also be read on this. The repayment plan is particularly helpful in planning follow-up financing or debt restructuring. This is the way to determine the remaining loan that is still outstanding. And this, in turn, reveals the amount of loans needed for follow-up financing or debt restructuring.
The most common variant of construction financing is the annuity loan with subsequent follow-up financing. Due to the constant monthly instalments, the negative interest rate to be paid decreases at the same time as the amount of credit falls. This, in turn, benefits the repayment and causes it to rise continuously. In addition to the classic, there are also other possibilities to trade a construction financing. The greatest security is provided by the full-payer loan. Here, the complete financing is planned up to the debt-free, without having to accept follow-up financing. On the other hand, if you are very willing to take risks, you can take a look at loans with a variable interest rate. In this variant, the interest rate of the loan increases or decreases, depending on the current market situation. Associated with this, however, the monthly repayment rate also increases or falls, which makes sensible planning very difficult.
Probably the most popular construction financing is the combined loan, consisting of annuity loans, building-saving loans and a promotional loan. In this way, financing with little equity can often be well-received. Depending on the type of loan, the customer can then choose an optional fixed interest rate. This is particularly worthwhile if higher interest rates are to be expected in the future, but these are currently low. This allows customers to secure the low interest rate over a term of 5-15 years and saves additional costs in the event of a rate hike during the loan term.
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