Anyone financing real estate in Germany eventually faces the same question: how much equity must I bring? The answer drives the interest rate, the monthly payment, and whether the bank approves the loan at all. Our equity ratio calculator shows where you stand in seconds — including the loan-to-value and the gap to your target ratio.
What is the equity ratio?
The equity ratio is your equity divided by the total cost of the purchase — that is, purchase price plus additional purchase costs (Kaufnebenkosten).
Formula:
Equity ratio = Equity / (Purchase price + Additional costs) × 100
Important: the ratio is measured against total cost, not just the price. With €80,000 of equity on a €400,000 property and €40,000 of additional costs, the ratio is 80,000 / 440,000 = 18.2 % — already below the classic 20 % mark.
The 20 % rule — and why more is better
Banks typically expect at least 20 % equity plus the additional purchase costs in full. The reasoning: additional costs cannot be collateralised (no recoverable value in a foreclosure), and a 20 % equity share of the price keeps the loan-to-value (LTV) at 80 %.
| Equity ratio | Loan-to-value (LTV) | Interest impact |
|---|---|---|
| 0 % (110 % financing) | 110 % | +1.0 % (when approved at all) |
| 10 % | ~100 % | +0.5 % |
| 20 % (standard) | 80 % | Base rate |
| 30 % | ~70 % | −0.2 % |
| 40 % or more | ≤60 % | Best rate |
Exact rate steps vary by bank, but the 60 % / 80 % / 100 % LTV brackets are industry standard.
Equity ratio vs. loan-to-value
Both metrics overlap but capture different perspectives:
- Equity ratio — buyer's view. How much of your own money is in the project?
- Loan-to-value (Beleihungsauslauf) — bank's view. How large is the loan relative to the property's appraisal value (typically close to the purchase price)?
LTV formula: Loan / Purchase price × 100
A 20 % equity ratio with 10 % additional costs means €88,000 of equity covers the €40,000 of costs plus €48,000 down payment. The remaining €352,000 loan yields an LTV of 88 % — just above the favourable 80 % bracket. Putting in €100,000 lowers LTV below 85 %, €120,000 below 70 %.
Worked example: €400,000 purchase in NRW
Classic high-tax scenario (NRW: 6.5 % real estate transfer tax):
| Position | Amount |
|---|---|
| Purchase price | €400,000 |
| Additional costs (~12 %) | €48,280 |
| Total cost | €448,280 |
| Equity | €100,000 |
| Loan | €348,280 |
| Equity ratio | 22.3 % |
| Loan-to-value | 87.1 % |
| Target equity (20 %) | €89,656 |
| Gap | €0 — target reached |
In this example equity covers the 20 % target, but LTV still sits above 80 %. Adding another €20,000 would often noticeably improve rate offers.
For a detailed breakdown of the cost positions, use our additional costs calculator; for the state-level tax rate the real estate transfer tax calculator.
What counts as equity?
- Liquid funds: savings, checking, fixed-term deposits
- Securities: ETFs, stocks, bonds (with a price-volatility haircut)
- Building-society savings (Bausparvertrag): the saved balance, ideally allocation-ready
- Life insurance: surrender value of an endowment policy
- Gifts or inheritance: contractually committed or already received
- Self-performed work (Muskelhypothek): estimated value of your own labour, often accepted up to 10–15 %
- Land already owned: appraised value counts toward equity
Not accepted: bank loans (that would defeat the purpose), though interest-free family loans without fixed repayment schedules are sometimes recognised as equity.
How to close a gap
- Extend the saving phase: 12–24 months of targeted saving via ETF plan or fixed-term deposits
- Lower the price: renovation property instead of new build, smaller unit, weaker location
- Family loan: zero-interest, no fixed repayment schedule — many banks accept it as equity
- Gift from parents or grandparents: tax-free up to €400,000 (children) or €200,000 (grandchildren) every 10 years
- Wohnriester / KfW programmes: in addition to the main loan, lowering the financing need
- 110 % financing: possible for very strong credit profiles, but pricier and riskier
When is more equity not worth it?
More equity lowers the rate but has an opportunity cost: the same money in a broad equity ETF historically returns 6–7 % p.a., while mortgage rates currently sit at 3.5–4.5 %. Rule of thumb: always keep an emergency fund (3–6 months of expenses) liquid; anything beyond that can sensibly go into equity, unless your expected portfolio return permanently exceeds the mortgage rate.
To see how the monthly payment changes with different equity levels, run the home loan calculator.
FAQ
Are 10 % equity enough?
Some banks lend at 10 % equity but add 0.3–0.5 % to the rate. Buyers who cannot even cover the additional costs risk rejection or a much pricier full financing.
What is the ideal equity ratio?
Bank view: 30–40 %. Buyer view: close to 20 %, rest invested. The correct answer depends on the spread between mortgage rate and expected market return.
Do additional costs have to be paid from equity?
Almost always yes — banks do not finance additional costs because no realisable value is created. Exceptions: building-society loans or KfW programmes can substitute part of it.
Conclusion
20 % equity ratio plus 100 % of the additional costs is the sound baseline for any German real estate financing. At 30 % or more you save on interest; below 20 % you should run the extra cost and risk through carefully. The equity ratio calculator answers in 30 seconds: where do you stand, and what's missing to your target?