As a prospective property owner, you will certainly want to contribute your own capital to build or buy your new property. The higher the percentage of equity in the financing, the better the terms on the construction loan.
From the banks' point of view, equity capital represents a lower risk – therefore, the banks welcome the contribution of future property owners' own assets. For you, this means less external financing, i.E. A lower loan amount.
For this credit you get then usually even better conditions, such as lower interest rates and better opportunities for unscheduled repayments.
So in this respect, it pays to spend your own assets on your own property. Banks then require proof of equity. So you have to show the bank that you can really put your own funds into building or buying real estate. Without such proof of equity, the negotiated loan will not be disbursed by the bank. Basically a simple topic – with which it comes however again and again to ambiguities.
How not to prove your equity
For many, real estate financing is a difficult topic and very complex at that. Some people have simple and sometimes bizarre ideas about how to provide proof of equity capital – especially if some or all of the equity capital is in the form of cash assets. Photographing cash and scanning the images or banknotes is one such idea. Such an approach is not only legally difficult, but it certainly does not provide sufficient proof of equity.
Banks are then even more likely to have the impression that the borrower may not have the stated assets after all. Proof of a safe deposit box is also not sufficient. Larger sums of cash are sometimes stored in a safe deposit box, but the proof that such a box exists says nothing about the contents. The bank cannot know with certainty whether the borrower has any assets at all. Showing the cash in person to the clerk is also not sufficient proof.
Statements are the only reasonable evidence
Thus, photos, scans and safe deposit box documents are not suitable to be used as proof of equity. With such evidence, you only get the bank not to disburse the loan. Correct and conclusive proof of equity is very easy to provide.
For proof of equity, a bank or deposit account statement is the right choice. Also digital account or depot statements and/or printouts of these are completely sufficient. Of course, the assets you want to use must be in an account or bank deposit for this purpose. So if you have cash, deposit it into a bank account. In that case, a deposit slip is also sufficient proof.
Do I have to use all savings?
In the area of equity and real estate financing persistent rumors persist. One is the quota of 20 percent, which should be the equity in the total amount. This is especially not the case in today's world. Although a ratio of 20 percent is a very good solution for many banks, you can also finance the property with less or more equity capital. The bank and you can negotiate freely here and contractually fix what is the best solution for both of you.
A second rumor is that banks coerce borrowers into contributing their entire savings as equity in real estate financing. This is also wrong. How much of your existing assets you want to contribute is, of course, your own business. In fact, many banks welcome it if you do not put the entire savings into the property, but still retain collateral. So you don't have to hide cash from the bank or anything like that either.
The construction or purchase of a property brings very many facts with which the future property owners must deal with. Among them is also a lot of paperwork. The equity proof belongs there in the reason still to the easier undertakings – nevertheless some ambiguities exist here.
Keep it simple: account or deposit statements are exactly the proof of equity you need and pass on to the bank. So the proof of equity does not stand in the way when the real estate loan is to be disbursed.