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How to get a mortgage in Germany as an expat

Nestled in the heart of Europe, Germany is widely considered one of the EU’s strongest and most stable countries. It continues to be a popular retreat for those looking to securely protect and invest their capital, particularly with expats looking to move to a new country with a calm market.

And with practically no restrictions for those seeking a mortgage in Germany for foreigners, the process is surprisingly simple. However, Germany has a well-deserved reputation for its thorough bureaucracy, which you’ll want to be aware of before browsing potential German mortgages.

To help make navigating the German mortgage system as stress-free as possible, we’ve broken down everything you need to know about German mortgages, and how to go about making an application.

Things to know about getting a mortgage in Germany for foreigners

While there is no restriction on expats buying property in Germany, even if you’re from outside the European Union, and therefore no restrictions on getting a mortgage, there are several things you need to be aware of immediately about German mortgages.

Even though you can buy property, UK buyers need to consider the continuing implications of Brexit. The pound is not as strong as it once was, and lenders may very well see you as more of a loan risk until the remaining Brexit uncertainty clears.

On top of this, there is no such thing as a mortgage guarantee in the German mortgage system, meaning a poor credit score will likely stop you from getting a mortgage before you’ve even started your property hunt.

You will also not qualify for a German mortgage if you’re within 5 years of retirement, have an income that is less than €20,000, or your current monthly mortgage payments exceed 35% of your total monthly income.

Getting a mortgage in Germany: first steps

Partially because German residents historically favour renting over buying, and recent attempts to curb rising house prices in recent years, mortgage rates in Germany have fallen to levels lower than most countries in Europe.

Of course, that should not be an indication to jump in feet first. As with any mortgage, the first thing you want to consider is your current financial situation, and what your overall budget is. Knowing what you can afford as a deposit will immediately make the mortgaging process easier.

Once you’ve a budget in mind, the next step should be to get in touch with an international mortgage broker, like those we work with here at Blacktower. Even if your intent is to get a mortgage with a German bank rather than an international mortgage solution, their wealth of expertise and translation services will make it easier to follow the German mortgage system steps.

With the assistance of a broker, you’ll then be able to get in touch with your German bank of choice to inquire about their mortgage services. Doing so may enable you to get a mortgage in principle that will then let you start housing hunting with a more precise budget. Either way, credit and finance checks will begin regardless.

Popular German and international banks you may want to use include:

  • Commerzbank
  • Deutsche Bank
  • Santander

Beginning the German mortgage process

After the initial mortgage steps are underway, you should begin looking to find a property to your liking. When you have one in mind and have agreed upon a price with the seller, it’s time to get the mortgage process fully underway.

German mortgages follow a similar process to the likes of those in the UK, the only exceptional difference being the substantially in-depth scrutinising of you and your finances.

Their financial institutions will look deeply at your financial status as due diligence to get a credit report or Schufa report. This is necessary to move ahead with getting a mortgage in Germany.

You may not have one as a foreigner, but you will be able to get an at-home credit report that you can then translate and provide to the mortgage lender. While this is being carried out, the lender will also ask you for numerous pieces of documentation, all of which will need to be translated into German before you send them.

The documentation required for getting a mortgage in Germany

As with any loan or mortgage, you will be required by the lender to provide a variety of documentation that can be used to assess your suitability for a loan. With the German mortgage system, you will be required to provide some or all of the following documents:

  • A German self-disclosure questionnaire
  • A property assessment form for your chosen property
  • Proof of employment in the form of at least the last 3 month’s payslips
  • The last 3-6 months of bank statements
  • Your last two tax returns
  • Documentation of any rental income
  • Proof of available equity to cover mortgage and finance costs
  • An extract from the Land Register for the previous 6 weeks in relation to the property you intend to buy.

Again, the use of a translator will be invaluable during this stage to ensure all documents are filled in correctly and understandable by the mortgage lender.

German mortgage rates and types

When it comes to mortgages in Germany, there are a variety of mortgage types and interest rates you’ll be presented with, each of which can be influenced by a few things.

As a general rule, expats can’t get a German mortgage that’s more than three times their current income. This will be assessed alongside your debt-to-income ratio (DTI), which is a comparison of your income and outgoings. The lower your DTI, the better rate you’re likely to get.

On top of this, the maximum mortgage loan-to-value rate you can expect to get can be anywhere between 55-70% of your property’s total value. So, if you want to ensure you can afford your property of choice, a deposit is a must to make up the cost difference.

As we mentioned previously, mortgage rates in Germany are exceptionally low, sometimes being as little as 0.5%, but averaging between 1-2%. Regardless of the type of mortgage you get, you can expect to pay minimal interest when compared to other countries.

The most common type of mortgage you’re likely to find in Germany is a fixed interest loan, also called an annuity loan. These loans offer you a fixed interest for the duration of the loan, but crucially, you can set what percentage you repay with each payment from between 1-10%.

Fixed-rate loans give greater flexibility in how you pay, and even allow you to make further payments of 5% per year should you feel so inclined. The potential of the cost of interest is reduced with this type of mortgage as interest is paid off first and is then followed by a steadily greater payment towards the original loan.

At the end of this type of mortgage, you can then choose to refinance and keep paying in instalments or pay the renaming cost in one go if you can afford to, though, with an average repayment length of 10 years, you’ll likely have paid most of the costs off by the end of the loan contract.

Alternatively, you can opt for a 0% interest mortgage loan. With this type of mortgage, you’ll only have to pay the cost of the interest, however, the total sum is still due at the end of the loan. Their low initial cost makes this kind of loan far more appealing for those looking to buy to let.

Finalising the German mortgage application process

Once all the checks have been completed and your mortgage lender is satisfied with your capacity to repay the loan, all that’s left is for you to sign any remaining agreements. With this done, you can then immediately make use of your mortgage to finalise the sale of your desired property. It’s as simple as that.

Other things of note about getting a mortgage in Germany

Thanks to German residents’ preference for renting, one thing that’s perfectly viable for those looking to buy property in Germany but not live there is to buy-to-let. Buying to let actual provides numerous tax-deductible benefits that you can make use of to help leave a bigger budget to pay off your mortgage.

There are actually several subsidies offered by the German government for those living and working in Germany. This includes pension subsidies that can contribute to paying off your mortgage, and tax incentives to make the purchase of real estate even more enticing.

The kfW Program offers loans of 50,000 for those that buy new builds or existing properties and can be combined with a mortgage to give you an even lower interest than the mortgage you might initially be offered.

Last, but not least, you should be aware that mortgages in Germany are not easily refinanced. You’re unlikely to be able to refinance a mortgage every few years, so if you get a mortgage that doesn’t suit you, you may well be stuck with it. This makes getting your mortgage choice right the first time very important.

Besides the thorough analysis of your documentation and financial situation, getting a mortgage in Germany is a straightforward process that should leave you with plenty of time to find the right property for your needs.

And speaking of choosing your new home, why not read our guide on buying property in Germany where we’ve included everything you’ll need to know about property hunting and purchase within the German market.

With Blacktower, you get easy access to a range of information in our free guides concerning countries around the world, meaning you can research what you need to know if you’re looking to move abroad.

If you’ve another country in mind besides Germany then you can visit our locations page. You can also browse the Blacktower blog for articles on financial planning and application around the world.

Buying property in Germany

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

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