Purchasing a home is much more difficult than most people realize

The real estate value, your equity, the first mortgage, and the second mortgage must all be taken into account when purchasing a home.

We’ll describe these various considerations and their various components for you.

The property you want is available in two different values. The first one is the market value, which represents the property’s true worth. The calculation is based on homes that are the same size, quality, location, or similar to those homes. The Market value displays the cost of a home in an average market scenario.

You must pay the Purchase Price to acquire the Home. Real estate is in high demand in Switzerland, but there isn’t a lot of it available. This indicates that the prices are higher than they would be in a typical market scenario. Your mortgage from the bank will only cover the market value; the buyer will be responsible for covering the difference between the purchase price and the market value.

To purchase a home or apartment, you should obtain a mortgage for two main reasons. First, it is practically impossible to obtain your desired object without a mortgage given the current real estate prices. Second, many expenses related to a home are deductible from taxes. Tax deductions are available for maintenance, renovations, interest, and amortization.

The second factor is money, which represents your equity. Your required minimum equity must be 20% because the bank will only lend you a maximum of 80% of the total amount. Two portions make up this twenty percent equity. At least 10% must come from savings, investments, account balances, insurance policies, inheritances, and other sources.

There are two different mortgages, as was already mentioned. 65% of the item’s value, or two-thirds, is the first mortgage. At 18:10. The Swiss National Bank’s interest rate in 2022 is 0%. The first mortgage is unique in that it doesn’t have to be repaid and the debt to the bank is also tax deductible.

The difference between the market value and your equity is covered by the second mortgage. Within 15 years or until you turn 65, the second mortgage must be repaid.

Ready to Settle in Switzerland?

Buying real estate in Switzerland as a foreigner can be a complex process due to strict regulations that prioritize local residents and aim to prevent real estate speculation. Here are some key points to consider:

1. Lex Koller: Switzerland has a law known as “Lex Koller,” which restricts the acquisition of residential properties by foreigners who do not have a Swiss residence permit. Under this law, non-resident foreigners are generally not allowed to buy residential properties, except in some specific circumstances.
2. Residence Permits: If you are a non-resident foreigner and wish to purchase residential property in Switzerland, you typically need to obtain a Swiss residence permit. The requirements for obtaining a residence permit vary based on factors such as your nationality, the canton you intend to reside in, and your reason for moving to Switzerland (e.g., work, retirement, family reunification).
3. Lex Friedrich: Non-resident foreigners may still acquire up to two residential properties in Switzerland under certain conditions. This exception is known as “Lex Friedrich.” To qualify, you must use the property for your own personal use, and it cannot be rented out for commercial purposes.
4. Canton-specific Regulations: Real estate laws and regulations may vary from one Swiss canton to another. Some cantons may have more lenient rules for foreign property ownership, while others strictly enforce the Lex Koller restrictions.
5. Commercial Properties: Foreigners, both resident and non-resident, can usually purchase commercial properties in Switzerland without restrictions. However, local laws and regulations still apply.
6. Inheritance and Gifting: In some cases, foreigners who inherit real estate in Switzerland or receive it as a gift from Swiss nationals may be exempt from Lex Koller restrictions.
7. Legal Assistance: Given the complexities of Swiss real estate laws, it’s essential to seek professional legal advice and guidance from a qualified Swiss attorney or notary when considering purchasing property in Switzerland.

Ready for us to assist you in purchasing your real estate?

Financial Requirements for a mortgage

To be accepted for a mortgage in Switzerland, a borrower must fulfill two minimal conditions that the lenders have specified:

Both the affordability and the loan-to-value ratio must be within pre-established limits. Loan to Value Ratio, i. E. The mortgage’s share of the home’s market value cannot exceed 80%. Inversely, this means that the borrower is required to put down at least 20% of the market value in their own funds.

Own funds go beyond cash; they also include inherited assets and personal loans. Pension funds from the second and third pillars may also be withdrawn beforehand or pledged in order to raise equity. The second prerequisite is that a mortgage must be affordable. Simply put, this means that your gross income must be enough to pay for all interest, amortization, and upkeep costs associated with the property. The amount of your monthly mortgage payments shouldn’t exceed 30% of your gross income.

Purchasing your dream house?

You should determine how much you can spend before starting your search for your ideal home.

Where you end up depends on two main factors. The first is income, and the second is personal property. The calculation for a mortgage is based on these two elements. Together, you and one of our consultants will calculate all the costs and determine what you can afford.

The income is taken into account when determining the mortgage payment. The bank determines affordability because it wants to ensure that you will be able to pay back the amortization and interest now and in the future. This calculation takes future interest rate increases into account to determine whether you would still be able to repay the entire amount borrowed. An assumed 5% mortgage interest rate is used in the affordability calculation. You get a specific amount by multiplying this hypothetical amount by the estimated and required amortization and maintenance. Up to one-third of your annual income cannot be used for this.

Own assets make up the second component. You must have a minimum of 20% equity in the loan because the bank will only lend you a maximum of 80% of the total amount. Two portions make up this 20% equity. At least 10% must come from savings, investments, account balances, insurance policies, inheritances, and other sources. Your pension may be used to cover the remaining 10%. If you decide to sell your home again, the same amount that you have deducted from your pension must be reimbursed and cannot be applied to another expense.

We highly recommend that you calculate everything with us because equity has a significant impact on the affordability calculation. If you need help with the calculation, don’t be afraid to get in touch with us.

Buying vs Renting

The decision of whether to buy or rent a home depends on various factors, including your financial situation, lifestyle, long-term plans, and local real estate market conditions. Here are some considerations for both options:

Buying a Home:

1. Equity Building: When you buy a home, you are building equity as you pay down the mortgage. Equity is the difference between the property’s value and the remaining mortgage balance.
2. Long-term Investment: Real estate can be a good long-term investment, and if property values increase over time, you could potentially gain from appreciation.
3. Stability: Owning a home provides stability and a sense of permanence, especially if you plan to stay in the area for an extended period.
4. Customization: As a homeowner, you have more control over the property and can make modifications or renovations as you wish.

Renting a Home:

1. Flexibility: Renting offers more flexibility, allowing you to move relatively easily when your lease ends, which can be advantageous if you have an uncertain job situation or frequently change locations.
2. Lower Initial Costs: Renting usually involves lower upfront costs, as you don’t need a substantial down payment or be responsible for some maintenance and repairs.
3. No Property Value Risk: As a renter, you are not exposed to fluctuations in property values, which can be a benefit in case the real estate market declines.
4. Less Responsibility: Renters typically have fewer responsibilities for property maintenance and repairs, as those are usually the landlord’s responsibility.

Factors to Consider:

1. Financial Situation: Assess your financial health, including income, savings, and credit score, to determine if you can afford to buy a home.
2. Market Conditions: Consider the current real estate market in your area. If property prices are high or rapidly appreciating, renting may be a more affordable option.
3. Long-term Plans: Think about how long you plan to stay in the area. If you expect to move within a few years, renting might be a more practical choice.
4. Maintenance and Repairs: Owning a home means being responsible for maintenance and repairs, which can be both time-consuming and costly.
5. Renting Costs: Compare the cost of renting with potential mortgage payments, property taxes, insurance, and maintenance expenses.
6. Tax Implications: Owning a home can offer tax benefits, such as deducting mortgage interest and property taxes, which could impact your overall tax liability.

Ultimately, the decision to buy or rent should align with your personal and financial goals. It’s essential to weigh the pros and cons carefully and consult with a financial advisor or a real estate professional to make an informed choice.

We would be happy to assist you in determining the best option for you. Please don’t hesitate to contact us and we will assist you.

Home Loan: Borrowing to Buy Property

A mortgage is a financial arrangement that enables individuals to purchase real estate, such as a home, even if they don’t have the full purchase amount upfront. It involves borrowing money from a bank or a lender to cover a significant portion of the property’s price. The property itself serves as collateral for the loan, which means that if the borrower fails to make the agreed-upon mortgage payments, the lender has the right to foreclose on the property, which involves taking ownership of it to recover the outstanding debt.

Mortgages typically come with specific terms, including an interest rate that determines the cost of borrowing the money. Borrowers make regular monthly payments that encompass both the loan’s principal (the initial amount borrowed) and the interest. Mortgages can have fixed interest rates, which remain constant throughout the loan term, or adjustable rates, which may change over time based on market conditions. The repayment period is often extended over several years, usually 15 to 30 years, allowing individuals to spread out the cost of homeownership while gradually building equity in the property.

The mortgage provider will not lend you the full value

At least 20% of your assets must be your own.

When you apply for a mortgage to buy a home, the mortgage provider may not lend you the full value of the property. This is because most lenders have certain loan-to-value (LTV) ratio limits, which dictate the maximum percentage of the property’s value they are willing to lend. The LTV ratio is calculated by dividing the loan amount by the appraised value or purchase price of the property, whichever is lower.

For example, if a lender has an LTV limit of 80%, it means they will lend up to 80% of the property’s appraised value or purchase price, and you will need to cover the remaining 20% as a down payment.

Here is a very basic illustration with a CHF 1,000,000 property value.

Example

• Value House: CHF 1’000’000.-
• Minimum Equity: CHF 200’000.-
• 1st mortgage: CHF 650’000
• 2nd mortgage: CHF 150’000

There is a shortage of real estate at the moment.

As a result, it can be challenging to find a home that meets your needs while remaining within your budget. With our extensive knowledge and connections, our consultants will locate the ideal property for you to purchase.

Two different real estate prices exist. The market price and the market value.

The market price is the amount of money a buyer who is ready and approved by a bank is willing to pay for a property, and it’s also what the seller agrees to. It can change over time based on factors like the property’s condition, local supply and demand, and recent sales of similar properties.

Market value is an estimate of what a property could sell for in a competitive market. It considers the property’s features, the overall real estate market, supply and demand, and the prices of similar properties that have sold recently.

The main difference between market value and market price is that market value might be higher in the seller’s opinion than what a buyer is willing to pay or what the property actually sells for.

In Switzerland, the demand for real estate is high, but there aren’t many properties available. This means the market price is higher than the market value. When there’s a big gap between supply and demand, prices tend to go up, as per the law of demand. You’re responsible for covering the difference between the market price and market value; your mortgage won’t cover that.