A dream home 2018 What stands between you and your own home?

A few stumbling blocks lie in your way to your dream home. But those who know their way can easily avoid them.

by Jürg Zulliger 23 Jun 2017

With a clear stroke of the pen, artist Beni Bischof from the Rhine Valley is putting his ideas for his own home down on paper. In 2009 he accepted his first Swiss Art Award.

1. Budget correctly

Is buying your own home cheaper than renting? If your calculation is based on today’s low interest rates, then yes, you might think so. But a word of caution: under current guidelines, a mortgage must also be affordable at imputed interest rates of five percent. Longer-term expenditures on real estate, such as ancillary costs, maintenance, renovations and mortgage payments, are often underestimated. The best way to work out what you can afford is with a mortgage calculator.

2. Plan in reserves

When buying property that’s not yet built, you usually have to make down payments and finance preliminary work. It’s important not to forget that the sales documents are based on ideal scenarios. Problems during building work, incorrect budgeting and delays are often left out of consideration. This is why you should factor in a contingency fund in the form of equity. And the savings you can make at the moment thanks to the very low mortgage rates should ideally be set aside in something like a fund savings plan, for instance to pay for unforeseen damage to the house, or as the first tranche of money needed for future renovations.

3. Clear the biggest hurdle

The required deposit of at least 20 percent can be a major obstacle on the path to buying your own home. Since 2012, buyers must pay at least 10 percent of the purchase price with “genuine” equity, which means savings, Pillar 3 account balances, securities or surrender values of insurance policies. The rest of the equity can be funded through withdrawals or pledges of pension fund balances. You cannot use any private loans that are interest-bearing and must be repaid, but gifts and inheritance advances do count as equity. However helpful such “cash injections” may be, long-term affordability must always be the priority.

4. Don’t overreach yourself

Over the past 15 years, land and property prices have risen in Switzerland while incomes have stagnated or fallen slightly. This divergence is particularly stark in city and lakeside locations. Buying a typical home currently costs 6.2 times annual household income, a figure that is above the long-term average. When it comes to prices, today’s generation tends to go to the upper limit of what they can afford. This strategy is not advisable, however.

5. Communicate clearly

Most people buying residential real estate make use of mortgage advice. This will be based on a frank discussion, detailed documentation that includes details of your financial circumstances (salary, pension fund, asset statements) and information on the desired real estate. The more detailed the information you provide, the more closely the advice can be matched to your personal situation, both in terms of the financing as well as the future opportunities and risks of owning a home.

6. Obey the one-third rule

You need a business plan to buy your own home. As a rule of thumb, ongoing fixed costs (interest, amortization, ancillary costs and maintenance) should not exceed one-third of your gross income if you are to meet the minimum standards. Bonuses and salary increases can be taken into account if they are clearly documented. Spouses’ second incomes may also be included, provided that these are steady, and only if the couple is jointly liable for the mortgage.

7. Think of your retirement

Your income is likely to fall by 20 to 30 percent when you retire. If you run the risk of getting into financial difficulties in old age, it’s essential to recognize this in good time. A sensible way to make sure that your debt remains affordable when you’re older is to make some amortization payments on a quarterly basis.