“How does one finance the purchase of real-estate or an apartment?”
First of all, one should count on 5% of the purchase price being spent on acquisition expenses (various things such as ‘droit de mutation,’ fees for the Registry of Commerce, notary’s fees, etc.) to which one can add the price of the real-estate in question, which is usually paid in cash.
As a rule, the financing is broken down into 20% cash (‘fonds propres’), which can either be savings or pension funds, and 80% bank financing –borrowed capital which may be spread across 1st tier (60% of the sum) and 2nd tier (generally at a higher interest rate due to higher risk premium) debt.
The structure of the debt, the ownership expenses (taxes, fees, heating costs, electricity, etc.) are used to estimate an annual budget necessary for the acquisition of the property. The rule is that the entirety of the annual expenses of ownership should not exceed one-
third of the annual revenue. Simulations are employed by lending institutions to permit the acquirer to examine his ability to obtain mortgage credit from major lending institutions (see www.cvi.ch).
As a concrete example, taken from the Vaudois Chamber of Commerce’s ‘guide to land ownership,’ for a real-estate object of value CHF 573,000, the acquirer should bring CHF 114,000 cash to the table, and can borrow the rest, of which at least CHF 344,000 should be first tier debt, and up to CHF 115,000 can be second tier debt, for a total debt of CHF 459,000.
