Settling in a new country is a challenging experience for expats, particularly when it comes to finding the right place to live. Even though renting an apartment is generally considered the more feasible and convenient option, buying a property can be a good financial investment in the long term.
If you’re an expat looking to purchase a house and secure a German mortgage, here are a few tips you might want to consider before starting your search.
An initial affordability check – using a mortgage calculator – gives buyers an estimate of how much they can afford. This gives you a broad view of your real estate financing needs and avoids any disappointment in the future when shopping for a new home.
Buyers receive an estimate of their monthly repayment amount and the purchase fees they would incur when buying a property. A good mortgage calculator can also help you anticipate different scenarios and figure out the most optimal mortgage solution by adjusting parameters such as the length of the fixed term, down-payment amount, and extra voluntary unscheduled payments.
Getting a mortgage pre-approval is essential for many buyers in Germany, as housing shortages in many major German cities have made the real estate market highly competitive. Not only does getting pre-approved help assure the seller that you can afford to purchase their property, but it also ensures buyers know exactly how much they can afford. This enables you to search for properties within a realistic price range.
The pre-approval process is simple and structured. The lender will ask you to complete a mortgage application and submit a few documents that help them evaluate your financial condition, such as income level, savings, and monthly expenses. Depending on the lender, most people can receive their mortgage pre-approval certificate within a few business days.
Expats can apply for a mortgage in Germany with no restrictions. However, how much you can borrow depends on your residency status in Germany. If you have permanent residence, it’s possible for you to receive more than 100% financing (i.e. 108% - 115%), meaning that you can not only receive full financing for the property price, but also a secondary loan to cover the additional property purchase costs such as notary fees, property tax, and real estate agent fees.
If you have limited residency status, you can get 100% financing, but you’ll need to cover the additional costs out of your pocket. Foreign investors and individuals who do not live and work in Germany, are not qualified for full financing, but they usually can get up to 70% financing of the property price. They must cover the rest of the costs with their own equity.
Mortgage interest rate has a major impact on the cost of your mortgage. Therefore, it’s vital to understand what can influence it. Generally, the higher the down-payment, the lower your interest rate, as the risk of the mortgage not being repaid is lower. The length of loan term also affects how much you’ll pay: the shorter the fixed term, the lower the interest rate will be. In Germany, most people opt for a 10-year fixed term.
If you’d like to have the flexibility to pay off your mortgage faster, you should also see which lenders give you the option of making voluntary unscheduled repayments. By allowing you to make one-off payments in addition to your regular monthly payment, this option enables you to pay off the outstanding loan more quickly, and thus significantly lowers the interest payment.
In Germany, many homeowners can take advantage of different state funding programmes. One example is the government-owned development bank – Kreditanstalt für Wiederaufbau (KfW). The KfW offers various low-interest funding programmes to help people finance a home.
For instance, under the KfW Residential Property Programme, buyers can borrow up to 50.000 euros at a low interest rate. KfW also promotes home modernisation projects that enhance energy efficiency. Homeowners can apply for the KfW Energy Efficient Loan to borrow at an interest rate from 0,75% and receive a subsidy of 27.500 euros to repay the loan. Buyers can also apply for a grant of up to 100.000 euros to buy properties classified as “efficient”.
Working with English-speaking mortgage brokers is essential for expats. Not only can they ensure you receive a tailor-made mortgage solution that suits your personal situation, they can also help you navigate the highly complex real estate market.