For most people, the dream of owning a home begins with a house tour or an ad on a real estate platform. But before you fall in love with a house, it’s worth answering two fundamental questions: How much down payment do I need? And: Can I even afford it? Answering these questions early on will save you a lot of stress later and help you avoid unpleasant surprises.
Equity: The 20% Rule
In Switzerland, there is a clear rule of thumb: You must be able to finance at least 20% of the purchase price with your own funds. The remainder—up to 80%—can be covered by a mortgage. However, this rule varies depending on the type of property. For example, different regulations apply to second homes, investment properties, and commercial real estate.
Here's an example: Let's say you want to buy a house for CHF 900,000. In that case, you'll need at least CHF 180,000 in equity.
Does that sound like a lot? It is. But the equity doesn't have to come exclusively from a savings account. The following sources are taken into account:
- Savings & Securities – the most obvious option
- Pillar 3a – your private retirement account can be used in full
- Pension Fund (BVG) – caution is advised here: a maximum of 10% of the purchase price may come from the pension fund, and doing so will reduce your future pension
- Advance on inheritance or gift – Money from parents is permitted as equity, but must be properly documented
- Construction work performed by the homeowner – when building or renovating, some of the work you do yourself can be credited toward the purchase price
Important to know: At least 10% of the purchase price must come from “hard” equity—that is, funds other than those from a pension fund. The bank will not accept it if you draw the entire equity portion from your pension fund.
Affordability: Is my income enough?
Equity is one side of the equation; affordability is the other. Even if you have the necessary equity, the bank will assess whether you can cover the ongoing costs of your home in the long term.
Swiss banks do not base their calculations on the current mortgage rate, but rather on a so-called imputed interest rate of around 5%. That may seem excessive today—but by doing so, the banks are protecting you from the scenario in which interest rates rise sharply in the future.
The rule of thumb is: Your total housing costs should not exceed one-third (33%) of your gross income.
These housing costs include:
- Mortgage interest (calculated at ~5%)
- Amortization (repayment of the second mortgage)
- Maintenance and utility costs (flat rate of 1% of the property value per year)
Sample calculation:
Purchase price CHF 900,000
Mortgage (80%) CHF 720,000
Imputed interest (5%) CHF 36,000 / year
Principal repayment (~1%) CHF 7,200 / year
Maintenance costs (1% of value) CHF 9'000.– / year
Total housing costs CHF 52'200.– / year
To qualify, you would need a gross annual income of at least CHF 156,600 in this example—that is, about CHF 13,050 per month.
What should you do when you're running low?
Don't panic—there are ways to improve the situation:
- Put down more equity: The more you put down, the smaller the mortgage will be and the more affordable it will be.
- Choose a more affordable property: Sometimes a smaller property or a different town is a more realistic option.
- Factor in a second income: If you’re buying as a couple, both incomes are taken into account.
- Talk to the bank early on: Many banks offer a free initial consultation—so you’ll know where you stand early on.
Our tip: Do the math first, then search
It’s tempting to start by viewing homes and then see if you can afford them. It’s better to do it the other way around: Figure out your financial situation before you start actively looking. That way, you’ll know exactly what price range you can search in and will be able to act quickly and confidently when you find your dream home.
The Swiss real estate market is competitive. Anyone who already has a financing commitment in hand has a clear advantage over other prospective buyers.
Do you have questions about your personal situation? We'd be happy to offer you a no-obligation consultation. Just get in touch with us.