Lack of personal equity

Author : Kristen

Lack of personal equity

Despite all of your efforts, you still lack personal equity. What can you do? What options do you have to move forward with your project?

First of all, we have to remind you that it is impossible to purchase real estate without possessing the minimum equity. Moreover, wanting to be an owner without sufficient capital is unrealistic.

Future owners have to be able to find a level of indebtedness that does not pose a threat to their financial situation should the initial rates change. Indeed, buyers who purchase with little personal equity when interest rates are low need to also consider the financial consequences of a rate increase.

With the help of DL MoneyPark, the buyer lacking equity can turn to the following:

  1. Financial institutions whose qualifying conditions make it possible to depart from the standard equity criteria depending on the quality of the file, the nature and value of the real estate property in question, and the debtor's level of income. Certain banks offer financing beginning at 10% equits, for others, 15% is required.
  2. Instutions that include purchase costs in their financial plan (approx. 5% of the acquisition value), thus allowing them to reduce the level of personal equity.
  3. A real estate guarantee cooperative that offers financing with 5% to 10% equity in cash. But in this case, the choice of the bank is limited, the purchase price is subjet to a maximum, and interest rates are not the most competitive on the market. In some financial institutions, the security guarantee is around 3%. For example, for a loan of CHF 100,000 over the usual 80%, the security guarantee will cost CHF 3,000 extra, regardless of annual interest.

In all of the mentioned cases, a minimum level of income is necessary because the criteria of the indebtedness ratio should always be adhered to. This means that the burden (interest, amortisation, and maintenance costs) should not count for more than a third of the income. This is especially true considering that a significant amortisation could be required in the contract  to reduce the short-term indebtedness, at least for the part of the lacking personal equity.

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