10 things expats should know about German mortgages
10 things expats should know about German mortgages
To the uninitiated expat buyer, taking out a German mortgage can be a daunting prospect. Your German Mortgage walks us through some of the key things expats should know before they get started.
If you are thinking about taking out a mortgage to finance your dream home, you’ll be happy to hear that this is completely within the reach of most expats in Germany. Before you march on ahead, however, here are some key things you should understand about the requirements, interest rates and costs involved.
1. EU citizens have the same rights as Germans
As you might have guessed, your residency status has an impact on the type of mortgage you can take out. The good news is that if you are an EU citizen and work as an employee, you have the same choice of banks as any German citizen. It’s not even necessarily a problem if you have a fixed-term employment contract, as long as you work in a profession where such regulations are common, such as doctors, university employees and IT professionals.
2. If you have a residence permit, your choice is more limited
On the other hand, if your residence permit is only for a shorter time, such as the four years granted by an EU Blue Card, your choice of banks is smaller. But there are, however, banks that offer you very competitive financing. Here too, your employment contract can be fixed-term. You only need to provide your last three pay slips.
3. Entrepreneurs can get German mortgages too
If you work as a freelancer or you have your own company, you can also qualify for a German mortgage. To secure funding, you will need to provide two to three annual financial statements that demonstrate your ability to pay back what you borrow.
4. There is a limit to what you can borrow
The sky’s definitely not the limit when it comes to mortgages. Banks want to ensure that you have an affordable repayment rate and set a maximum limit on what anyone can borrow. As a rule of thumb, multiply your net income by 100 - this is the maximum loan that banks can offer you.
5. Mortgage consultants are worth their weight in gold
Give yourself a leg up. Contact an independent mortgage consultant at an early stage. Send them the details of a property of your choice and let them advise you on your financing options. A good consultant has excellent contacts with local and national banks. In addition to personal advice, they will also take care of all correspondence and coordination requirements with the banks. If German isn’t your strong point, this can really be a life-saver!
6. Ancillary purchase costs in Germany are high
Now onto some of the less-good news: compared with other countries, the ancillary purchase costs in Germany are relatively high. Real estate transfer tax is payable on property purchases, amounting to 3,5% - 6% of the purchase price, depending on the federal state in which the property is located.
On top of the transfer tax, you will have to pay notary fees for the execution of the sales contract (approximately 2% of the purchase price) and real estate agent fees (3,57% - 7,14%). Banks expect these costs to be paid out of your own equity, rather than the mortgage. However, if your net income allows it, it may be possible to have this amount taken over by a second bank within the context of a total financing request
7. Refinancing is not common in Germany
Unlike in many English-speaking countries, it is not customary in Germany to change or refinance your financing every three to four years. Interest rates are usually fixed for ten years or longer and strict credit-checking rules apply to all banks, primarily to ensure the long-term sustainability of the customer's financing costs. If you hire an experienced mortgage broker, they can check your financing in advance and find the right bank for you.
8. Securing a loan isn’t everything
Receiving your loan commitment is a nice milestone, but it is far from the end. Often the paper war starts again. The land charge must be entered in the land register, and further conditions for disbursement must be fulfilled. It is therefore helpful to have an independent financial advisor at your side right from the start who offers support. If you have engaged a consultant for the loan brokerage, this service is usually complimentary.
9. Mortgage rates are often renegotiated
At the end of the fixed-rate period, generally after ten years, the interest rate of the remaining loan is renegotiated with the bank. An independent mortgage consultant will make you an offer for follow-up financing three years before the end of this period. This means that you can secure favourable interest rates in good time and will not experience any unpleasant surprises.
10. It’s possible to remortgage
After the ten year fixed-rate period, it is also possible to have the bank revalue your property to get an additional equity release. This is a practice that capital investors like to use to acquire further real estate.
In a nutshell
There’s a lot to think about when taking out a mortgage as an expat in Germany. Don’t jump the gun with a financial decision this big - carefully consider every aspect. And make sure you have a professional by your side to help you out.
With in-depth knowledge, long-term links with lenders and more than 20 years’ experience, Your German Mortgage has helped thousands of foreign buyers secure the best financing for their own homes in Germany.