Mortgage in Germany: Four steps that expats need to know

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Published on 2021-05-31 at 14:32
Buying a property is one of the most exciting life decisions for most people. And that excitement is multiplied when it comes to buying a property abroad! Expats considering a mortgage in Germany should be happy to know that the country is one of the safest and more secure countries for real estate investment, only behind the US (according to a 2021 survey by the Association of Foreign Investors in Real Estate – AFIRE).

If you are looking to get a mortgage in Germany, here are a few steps that expats need to know:

Know the German housing market and mortgage types

For years, Germany was known for having low home-ownership rates – 46% in 2014. One of the reasons is because tenants are well-protected by the country's legislation, and rent prices remained steady. However, that scenario is quickly changing, and larger cities such as Frankfurt, Munich, Berlin, Dusseldorf or Hamburg have seen their property prices escalate.

The good news? The long term interest rates for mortgages in Germany are still attractive, especially compared to other European real-estate hot spots. As for February 2021, the lowest fixed rates were 0.4% (5 years) and 0.5% (10 years).

Types of Mortgage in Germany

It's also essential for expats to know the different types of German mortgages available. In a nutshell, they are:

  • Annuity loan: a fixed-rate loan in which interest rates remain constant.

  • Interest-only loan: In this case, expats will repay the interest portion over a fixed term. If you are a German taxpayer, interest payments can be tax-deductible.

If you don't speak German or are not in the country, you might want to consider an independent mortgage broker to help you. Keep reading to find out more about it!

Get your documents ready for your German mortgage

Germany is (in)famous for its amount of paperwork and general bureaucracy – and getting a mortgage is no different. If anything, be prepared to have your financial and personal records strictly checked! 

Beyond passport, residency status, general bank statements and payslips, expats also have to present their tax declarations for the previous three years. You can get a complete checklist of the required documents here.

Start saving for your down payment 

Expats should be aware that German lenders expect a deposit of at least 20%. However, mortgages in Germany will also depend on your residency status as an expat:

  • Full German residency: You might be able to get a mortgage without a down payment.

  • Living and working in Germany: Although it's possible to finance up to 100% of the property value, the best interest rates lie between 50–60%.

  • Living and working abroad: You can borrow up to 60–70% of the property value.

And remember: In Germany, monthly mortgage payments should never be more than 35% of your monthly income. To find out how much you can afford, try this mortgage calculator.

Consider an independent mortgage broker 

Overwhelmed? It's understandable. Consider the support of an independent mortgage broker such as LoanLink24

Independent mortgage brokers will help you define how much you can afford, select personalised mortgage offers, and offer general support throughout this exciting but lengthy and bureaucratic mission. This way, expats can get free advice on the buying process, including tips on hidden and associated costs or purchasing property in Germany. 

Congratulations in advance on your new home!

LoanLink24 specializes in finding the most suitable property loan for non-German residents. Our algorithm screens more than 450 banks to find the best deal, and our financial advisors guide you through every step.