Subsidies for Home Financing in Germany
Housing allowance, loans, and subsidies for buying property in Germany
Many people are under the impression that unless their pockets are deep, owning property is an out-of-reach dream. However, financing options for every budget are readily available in Germany. To enable more people to afford a home, the German state and its institutions support home buyers in various ways. For those who are employed, civil servants or self-employed, we have put together an overview of the subsidy options for financing your own home.
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Assistance for many types of buyers
The extended property boom in Germany caused prices to steadily increase, threatening to outprice new buyers. To avoid this, Germany wanted to encourage investors by providing assistance especially to families, low-income individuals, those with disabilities, and first-time homebuyers. If you're willing to wade through the paperwork, Germany has millions of euros available to help first-time homebuyers. You can even get funding if you're renovating or building. There are more than 6,000 types of funding available in Germany, and many are also applicable for foreign residents.
Wohn-Riester is a form of the very complex Riester subsidy, which is also called the home ownership pension scheme (or Eigenheimrente in German). It is aimed at supplementing private pension with state subsidies. The prerequisite for this is that a portion of your gross annual income must be paid into a Riester contract. Thanks to the allowances, Wohn-Riester helps you repay a loan more quickly in order to live rent-free in old age. The allowances amount to 175 euros per person entitled to subsidies. For children living in the household, you will receive an additional 185 euros if they were born before 2008 and 300 euros if they were born after 2008. Employees who pay into the statutory pension insurance scheme as well as civil servants, soldiers and judges can take advantage of this form of support. You can open a Wohn-Riester savings account through your regular bank.
Home Ownership Programme of KfW-Bank
All private individuals, regardless of age and marital status, can apply for a low-interest loan for the purchase of owner-occupied housing from the Kreditanstalt für Wiederaufbau (KfW Bank). The KfW Bank is the federal government's development bank, usually used for international aid and exports, and now used to help fund housing. The bank's biggest initiative is "Program 124", which distributed €4.2 billion to 87,000 homeowners in 2017 in with subsidized loans of €50,000. This loan could only be used to help fund the buyer's own home or a home for an immediate family member. Under the KfW Home Ownership Programme, subsidised loans of up to €100,000 are possible. And the government is also working hard to support sustainable homes. Those who buy a home in particularly energy-efficient new buildings can even expect loans of up to €120,000 and a repayment subsidy of up to €30,000. Supported by the Federal Ministry of Economics and Energy, climate protection is the main focus here.
However, many criticize the KfW loans for their comparatively high interest rates. Many of these loans end up being more expensive than financing options with commercial banks. However, these federal loans are still extremely flexible. For example, the "Program 124" and the Home Ownership Program are not limited by person, but by property. This means if you buy a home and then move, you could apply for another KfW loan or subsidy. The loans also allow for partially fixed rates or for interest-only payment years. It's also possible to use the money towards paying the additional costs incurred when buying a property, like closing fees and taxes--unlike regular bank loans, which are strictly for the asking price of the property. But like commercial financing, prepayment penalties can still apply. The good news is that German banks are familiar with these initiatives and can easily incorporate the loans into their own financing schemes.
Baukindergeld is a relatively recent government initiative in Germany. Since 2018, the KfW Bank also pays out the Baukindergeld. Eligible recipients receive €12,000 for each child under 18 living in the household (for which they should also receive child support money from the government). The household income may not exceed €90,000 for a family with one child or €15,000 for each additional child. For example, a family with two children with an income of less than €105,000 per year is eligible for Baukindergeld. A family with two children could then receive €24,000 to use for buying a home for the first time. The allowance is paid in ten annual instalments of €1,200 each and is intended to make it easier for families and single parents to finance their own home.
KfW-Bank is the world's largest national development bank. But there are also promotional banks at the regional level, which support the acquisition of residential property in addition to federal states, municipalities and even churches. The promotional activities vary from region to region and are largely aimed at making certain areas more attractive for developers and newcomers. While Berlin is the only federal state without subsidies for real estate financing, the Free State of Saxony supports the purchase and renovation of apartments in urban areas such as Leipzig.
Keep in mind that interest rates at commercial banks are still incredibly low, meaning that government loans aren't necessarily the most fiscally sound option. However, they can still be worthwhile options for those who need more help with financing a property. If you would like to apply for any of these subsidies or loans, talk to our financial advisor to learn more detailed information on financing your future home and which subsidies you may be eligible for. You, too, can soon start a fulfilled life in your own home.