Financing Fundamentals

With German mortgage rates amongst the lowest in the world, it makes perfect sense to arrange some kind of financing to assist you in buying an apartment. Here, we try to give you an overview of the process, and what you need to know to get a mortgage.

Obtaining Financing

The first question to be asked is: Is it possible for a non-German to get a mortgage from a German lender? Luckily, this has a very simple answer: yes, there are no restrictions on non-Germans, or non-EU citizens, from owning property or obtaining a mortgage in Germany. It is really no more difficult to obtain a mortgage in Germany than in any other European country, and it functions in essentially the exact same way as in other countries: you borrow money from a lender and agree monthly repayments at a certain rate.

However, the conservative nature of German finance, and their attitude towards credit in general, mean that German mortgage lenders will look into your credit-worthiness more closely than in other countries. They will not only assess the value of the property you are looking to buy, but also your own personal and financial situation. Credit and debt are far less common in Germany than elsewhere, so lenders like to make sure that you are a safe bet. In spite of this level of scrutiny, however, it should not be particularly difficult to agree financing with reasonable rates, even for non-residents.

Although 100% mortgages are possible, a loan of 80% of the property’s value (excluding closing costs) is far more likely, and for non-residents, 60-70% is more common. However, each case is individual, and depends on your own circumstances.

Types of Mortgage

The next thing to look into is the common types of mortgage available in Germany. There are 4 main categories:

  • Fixed Interest Loans – this is the most common type of mortgage that you will find on offer. The interest rate does not fluctuate during the period of the loan. The amount you repay will remain the same for the duration of the mortgage, though the interest portion decreases and the loan repayment portion increases as the loan is repaid.

  • Variable Rate Loans – with this type of mortgage, the interest rate varies according to the base rate, which is the Euribor (Euro Interbank Offered Rate). If the Euribor-rate increases*, the interest which has to be paid increases as well as vice versa.

  • Interest Only Loans – with this type of mortgage, only the interest portion of the loan is repaid over a fixed term, with the full amount of the capital due for repayment at the end of the loan period. This can be interesting for investors, as monthly payments are low and can be tax deductible. However, you will need to make sure that the outstanding loan amount can be paid off at the end of the term.

  • Building Society Loan – this is somewhere between a fixed interest and interest only mortgage. The instalments will be partly (or wholly) paid into a building society savings programme, which will be used to pay the principal balance at the end of the term.

*The Euribor rate is currently negative, meaning interest payments are low, but they can of course increase, particularly over the length of time of a typical mortgage.

What Will I Need to Prove?

As mentioned before, German mortgage lenders will subject you to a level of scrutiny you may be unused to, though most things they will ask you are reasonably straightforward. The first and most obvious is your employment situation and current income. As proof of income, if you are employed you will have to provide 3–6 months of pay slips; if you are freelance, it will be up to two years of balance sheets, business and economic evaluation, and the prior year’s tax returns. You will also need to provide a credit report; if you are resident in Germany this will be a Schufa report, otherwise it will be a similar credit report from your home country.

More personally, mortgage lenders will also require information on your marital status, age and health profile. They are also likely to request a recent extract of the property’s land register and a property assessment report from a surveyor. None of this should disqualify you from a mortgage, but it may affect how much they are willing to lend you, and at what rates.

Loan Options

If you already have a bank in Germany, this is a good first option for a mortgage. If you have been a customer for some time, that might help you to gain favourable conditions. However, there are plenty of banks willing to offer mortgages, and some even specialise in loans to non-residents. There are also a number of loan comparison websites, which should give you an overview of possible options. There are even online mortgage brokers, meaning you don’t have to visit the banks in person to arrange your mortgage, saving you time and effort.

Obtaining and arranging financing for buying a property in Germany is really no more difficult than anywhere else in the world, and the low interest rates mean you can get a very favourable deal. There is a wide variety of options, from many different institutions, so shop around to find the perfect fit for your own situation and profile.

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