4 points to see absolutely for the personal contribution in real estate

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Rudolphe ABEN

4 points to see absolutely for the personal contribution in real estate

All set! This is the year you are going to buy a house, you have decided. You have already told your relatives, and they have asked you if you have any personal funds set aside for the purchase of your new home in Luxembourg. But what is it? And what exactly is it for? Some clarifications in a few points.

What does "personal contribution" mean in the context of real estate?

The funds can be used for the purchase of land or the construction of a building. It is any money you have set aside or will receive (through gifts, sale of other assets, etc.) for investment purposes.

A contribution in real estate credit is a guarantee for the banks

How did you learn this? In some cases, making a down payment can make it easier to get a loan.

This is true. The following factors will be taken into account by the bank before deciding to grant you a mortgage or a line of credit for a real estate purchase: Your regular/sufficient income; your current loan repayment expenses; and...your down payment.

Some financial institutions even stipulate that you must bring a specific amount of your own money as security for the loan. Your financial institution may require a minimum personal contribution of ten percent and a maximum of twenty percent of the total investment, both based on your ability to make monthly payments.

The funds from this donation will be used for a number of different things: payment of registration fees (typically seven percent of the purchase price of the property), notary fees, registration fees, etc.

The personal contribution in real estate is a smart way to control the debt

Sometimes you don't see the point of having a personal contribution?

If we add that you can control your debt/income ratio, would you be interested?

After signing the loan contract, your monthly payments will be lower in proportion to your contribution. This way you can reduce the risk of overdraft fees.

In this way, your personal contribution will reduce the total amount you have to borrow from financial institutions.

So should you put all your eggs in one basket and buy a house? In a word, no, you don't have to put everything into this plan. You should always have some money set aside for contingencies...

How can I save for a down payment?

The thought crosses your mind that you just don't have the resources to make such a generous gift, and... Don't panic, but you should consider creating an emergency fund now.

A home savings account is a good option for this purpose. The money in this account cannot be withdrawn for a predetermined period of time, but this should prevent you from spending it immediately on a vacation! The money placed in the savings account can also be partially deducted from your taxable income.

And finally, you are ready to sign your first real estate loan in Luxembourg and to meet your bank's demands regarding your personal contribution. Also, if you haven't already done so, it's time to start looking for a new place to live. Do not hesitate to contact us if you need help in this regard.