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What is the down payment / equity ratio (Eigenkapitalquote)?
The equity ratio indicates the share of the property purchase price that is financed by the buyer with their own funds (equity, Eigenkapital), without taking out a loan. It is expressed as a percentage of the total value of the property.
For example, if a property costs €400,000 and the buyer contributes €80,000 of their own money, the equity ratio is 20 %.
Why is the equity ratio important?
The higher the equity ratio, the more confidence the bank usually has in the borrower’s ability to repay the loan. This often leads to:
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better financing conditions,
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lower annual interest rates,
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a smaller loan amount and therefore lower monthly instalments.
Having sufficient equity also reflects the buyer’s seriousness and financial stability.
What equity ratio is recommended?
Banks and financial experts generally recommend a down payment of at least 20 % of the property price.
In some cases, lower ratios such as 10 % are possible, but this may result in:
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higher interest rates,
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additional collateral requirements such as insurance or personal guarantees,
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stricter repayment conditions.
What counts as equity (Eigenkapital)?
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Cash savings in bank accounts,
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savings contracts such as Bauspar agreements,
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investments that can easily be converted into cash,
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gifts or inheritance money (with proof of origin).
Loans or borrowed funds – even from friends or relatives – are not counted as equity.
Is 100 % financing without a down payment possible?
In exceptional cases, some banks may offer full financing (100 %), or even loans that also cover the additional purchase costs (Nebenkosten). Such offers are usually reserved for borrowers with high incomes and excellent credit ratings.
Despite their appeal, these options involve considerable financial risks, such as:
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significantly higher interest rates,
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a higher long-term debt burden,
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difficulties in selling the property later if market prices fall.
Steps to applying for financing after determining your down payment
1. Collect your documents
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Proof of income (pay slips, tax assessments),
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proof of equity,
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SCHUFA credit report.
2. Compare financing offers
It is advisable to compare offers from several banks and financial institutions, paying attention to:
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interest rates,
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repayment conditions,
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flexibility regarding extra repayments (Sondertilgung).
3. Submit the formal application
Once you have chosen the most suitable offer, you submit a formal application. The bank then assesses your financial capacity and creditworthiness.
4. Property valuation
The bank commissions a valuation of the property to verify its value as collateral.
5. Signing the contract and disbursement
The loan agreement is signed, and the funds are transferred – according to the agreed conditions – to the notary or directly to the seller.
Important tips
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Aim to increase your down payment ratio whenever possible to reduce long-term costs.
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Do not invest all of your equity; keep a financial buffer for additional expenses such as taxes, fees and repairs.
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Consult an independent financial adviser to fully understand the details of each offer.
Conclusion
In Germany, the equity ratio is a key building block of any sound property financing plan. It determines not only the loan amount, but also directly influences the financing terms, interest rate and long-term risks. With clear financial planning and sufficient equity, the path to owning your own home becomes much safer and more stable.
The editorial team of this website strives to provide accurate information based on thorough research and multiple sources. Nevertheless, errors may occur or information may be incomplete or not fully verified. Therefore, the information in this article should be regarded as an initial point of reference only. For binding and up-to-date advice, you should always consult the competent authorities or appropriately qualified professionals.
