Basically, a real estate purchase is made of individual funds, yours, and a mortgage loan, granted by the bank.
For better understanding, I propose a small illustration to help you visualize a real estate purchase and, more precisely, the part we are concerned with here.
Let’s take as an example my apartment with a garden situated in the heart of Chalet-à-Gobet, on the edge of Lausanne. My wife and I just purchased it for a grand total of 770’000 CHF.
Individual funds have to a minimum of 20% of the total except in case of pledging. We had to gather these 20% of the total amount, that is 154,000 CHF excluding the purchasing fees, in order to have a chance to be granted a loan by our bank. Luckily, I had 150,000 CHF and some change that happened to be laying around in the inner pocket of my coat.
Needless to say, had I gone to see my banker with 150 purple banknotes, he would have given me a strange look. It may have worked 20 years ago, but things have changed.
What forms can individual funds take?
- The assets on your accounts. Saving accounts, deposit accounts, private accounts…
- Your pillar 3A. Either by transferring the amount saved or by pledging them as mixed life insurances.
- Loans without interests, for instance from a friend or relative, I have even seen someone recommend asking one’s employer (personally, I didn’t dare, but this might be a lead…).
- Your pillar two under certain conditions (essentially, you have to live in the housing you are purchasing and the pillar 2 amount cannot exceed half of your personal funds).
- Donations and/or early inheritances.
When you look at it this way, the 20% individual funds are less intimidating. There are many possibilities to gather the required amount.
If you have your eyes on your dream home but you are missing part of the 20% individual funds from your bank accounts, get in touch with us and we will have a look together at how we can gather the sum!
Be careful: it is important to draw your attention on two more little things:
- In our example, we do not discuss purchasing fees, which are directly related to the purchase of your property. These fees can be significant and you have to pay for them in addition to the required individual funds. They amount to, more or less, 5% of the price of the property (maximum).
- The percentages used in this example are the average ones, but they can vary, to a certain extent, depending on financial institutions.