How much equity is mandatory?

Nothing is required by law. The industry rule of thumb: the purchase costs — notary, land registry, real estate transfer tax and estate agent commission where applicable — should be paid from equity. In Hesse that comes to around 10 to 12 percent of the purchase price. Beyond that: the more equity, the better the conditions tend to be.

Does a life insurance policy count as equity?

Only to a limited extent. A life insurance policy that could be paid out at any time is often accepted — usually with a safety discount. A policy maturing only in ten years is not counted as available equity, but some banks may accept it as additional security.

Can I finance without any equity?

Yes — full financing (100 percent of the purchase price) is possible, and so is 110 percent financing (including purchase costs). Both come with higher interest premiums and require a very strong credit profile. In the right circumstances it can make sense — sweeping recommendations are out of place.

What is a Muskelhypothek?

"Muskelhypothek" — sweat equity: work on the build or renovation that you carry out yourself instead of hiring a tradesperson. Banks only recognise it in part, as a rule at 5 to 15 percent of the construction cost. Prerequisites: a realistic calculation of hours and demonstrable practical skills.

Should I put in all of my savings?

No. You should always keep a liquidity reserve of three to six months' expenses — for unexpected repairs, post-move renovations, life events. If you run your savings down to zero, you end up financing the next boiler repair on your overdraft.

Guide — Fundamentals

Equity

How much equity do you really need?

Rules of thumb, pitfalls, special cases. Explained factually, without the usual “the more, the better” platitude.

The question of equity is usually the first one raised in an advisory meeting — and at the same time the one where simple advice most often leads you astray.

The rule of thumb — and what it leaves out

The classic rule of thumb: 20 percent equity plus purchase costs. On a purchase price of 400,000 euros, that would mean around 80,000 euros in equity plus 40,000 to 50,000 euros in purchase costs — 120,000 to 130,000 euros in total.

That is a sensible order of magnitude for many cases. But it is precisely that — a rule of thumb, not a law of nature. We regularly see solid financing arrangements with considerably less equity — and just as many cases where 20 percent is not enough, because the credit profile or the property does not support it.

What counts as equity — and what does not

Banks recognise assets that are available at the time the loan is disbursed: savings balances, instant-access and fixed-term deposits, building savings balances, securities that can be sold immediately, existing building savings contracts (Bausparverträge) that are ready for allocation, life insurance policies with a surrender value.

Not recognised, or only to a limited extent: locked-in pension savings (Riester, Rürup, occupational schemes), building savings contracts not yet ready for allocation, long-running life insurance policies you cannot access, theoretical values (e.g. “my car is worth 30,000”). If you do not know this early on, you will calculate your financing as rosier than it really is.

Purchase costs — the frequently underestimated block

The purchase costs are not up for negotiation; they are fixed amounts. In Hesse, currently:

Real estate transfer tax: 6.0 percent of the purchase price
Notary & land registry: approx. 1.5 to 2.0 percent
Estate agent commission (where applicable): usually 3.57 percent (incl. VAT) for the buyer in Hesse

Total: often 8 to 12 percent, up to 14 percent with an estate agent. These amounts should — wherever possible — come from equity. If they are financed as part of the loan, it is known as 110 percent financing, and that comes at a price in the form of an interest premium.

Special case: full financing

Full financing — 100 or 110 percent of the purchase price — is possible today and by no means unusual for buyers with a strong credit profile. It is not inherently bad: for younger professionals with a steep income trajectory, entering the market can make more sense than spending five years saving up equity.

What everyone should know, though: full financing usually costs half a percentage point to a full percentage point more in interest — a five-figure sum over 30 years. And it only works with a spotless credit profile, stable income and a clean Schufa record. For the self-employed, young families planning parental leave or anyone with volatile income, it becomes considerably harder.

What you should hold back

One rule of thumb we stand by consistently: do not run your equity down to zero. A reserve of three to six months’ expenses should remain untouched. Heating system, roof, fitted kitchen, life events — something always comes up in the first years after moving in. If you have no liquidity then, you end up financing it the most expensive way there is: consumer credit or an overdraft.

Better to put slightly less equity into the financing and sleep soundly instead. It looks marginally more expensive on the conditions side — but in everyday life it is the wiser decision.

Frequently asked

All about equity

Five questions we hear every week.

How much equity is mandatory?: Nothing is required by law. The industry rule of thumb: the purchase costs — notary, land registry, real estate transfer tax and estate agent commission where applicable — should be paid from equity. In Hesse that comes to around 10 to 12 percent of the purchase price. Beyond that: the more equity, the better the conditions tend to be.
Does a life insurance policy count as equity?: Only to a limited extent. A life insurance policy that could be paid out at any time is often accepted — usually with a safety discount. A policy maturing only in ten years is not counted as available equity, but some banks may accept it as additional security.
Can I finance without any equity?: Yes — full financing (100 percent of the purchase price) is possible, and so is 110 percent financing (including purchase costs). Both come with higher interest premiums and require a very strong credit profile. In the right circumstances it can make sense — sweeping recommendations are out of place.
What is a Muskelhypothek?: "Muskelhypothek" — sweat equity: work on the build or renovation that you carry out yourself instead of hiring a tradesperson. Banks only recognise it in part, as a rule at 5 to 15 percent of the construction cost. Prerequisites: a realistic calculation of hours and demonstrable practical skills.
Should I put in all of my savings?: No. You should always keep a liquidity reserve of three to six months' expenses — for unexpected repairs, post-move renovations, life events. If you run your savings down to zero, you end up financing the next boiler repair on your overdraft.

Related guides & services

Contact

Your first consultation — free and without obligation.

30 to 60 minutes in which we listen to your situation, answer first questions and tell you transparently whether and how we can help. No sales pitch. No pressure.

I.We get back to you within one working day by phone or e-mail.
II.We arrange an appointment — in person, by phone or via video call.
III.We assess your situation and tell you openly how we can support you.

Start your enquiry

A few quick steps to your personal assessment. Response within 24 hours, strictly confidential.

Key facts about your plans and equity
Occupation and net household income
Preferred advisor, or leave it open
Your contact details

Start enquiry now

Takes about 2 minutes. No credit check at this stage.