There are no restrictions for non-nationals and non-residents to buy a property in Germany. In most cases, foreigners will have to take a mortgage with a German bank. Getting a mortgage from a European bank, while technically possible, is very unusual and difficult. But there are a good number of choices to get a mortgage with a German bank (called a Hypothek). This article walks you through the main types of mortgage in Germany for foreigners.
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How to get a bank loan/mortgage from a German bank?
You don’t legally need to be a resident to open a bank account in Germany. But non-residents usually get offered lower amounts, around 50% of the property price. This mean that you may need to pay up to 50% of the property upfront, which can be quite a sum! For German residents, the amounts differ in each situation, and banks will fund up to 80% of the property price.
The four largest banks in Germany are Deutsche Bank, Commerzbank, Postbank, and Hypovereinsbank. All of them offer mortgages, but it’s good to check the small print as each package differs slightly. Most banks also have an online mortgage calculator, which can give you a better idea of the interest rates and fees. Make sure to ask if they have an English-speaking counsellor to help you!
Making a downpayment
In the process of buying a property in Germany, once you have a clear project in mind, it is good to get a mortgage agreement ‘in principle’ from different banks. This will give you a better idea of what you can afford and will improve your profile in the eyes of sellers.
Foreigners are expected to provide a rather large part of the property price on their own. Most banks will ask for up to 50% of the property price upfront! Especially in large cities like Berlin, the government wants to reduce real estate speculation and encourage property sales for long-term residents, so they make financing more difficult for non-residents. If you are transferring your down-payment from a foreign currency, make sure to check your exchange options! Some external institutions (like TransferWise) offer interesting options to transfer money from one currency to another.
Taxes and fees
Keep in mind that in addition to the price of the property, the buyer will have to pay an additional 15% in fees and taxes. Most of these side costs are deductible from your income tax if your fiscal residence is in Germany. The side costs of a real estate transaction in Germany include:
- Real estate transfer tax (Grunderwerbssteuer): depending on the federal state, these vary between 3.5 and 6.5% (6% for Berlin-Brandenburg)
- Notary fees: around 0.5%
- Registration fees (Grundbuch): around 1%
- Real estate agent (Makler) fees: usually around 6% + tax, for a total of 7.14%
Types of mortgages in Germany for foreigners
Keep in mind that getting a mortgage with a German bank is a legally binding agreement. Failure to repay a loan may have hefty consequences, such as the repossession of the property by the bank. In Germany, individual credit scores are closely monitored (also known as the Schufa).
The German housing market barely suffered the 2008 financial crisis, probably because German banks are quite conservative with their lending policies for mortgage in Germany for foreigners. Both the property and the mortgage-taker are evaluated by the lender. They will look into your income, savings, and employment history (being self-employed or in a short-term contract could be obstacles). Age is also a factor (being close to retirement age is considered a higher risk).
Make sure to get offers from several banks and read the contracts with a legal expert before engaging into a mortgage. Last but not least – if you live in Germany and are a German tax payer – there are several state supported programmes that can come in useful should you wish to buy a property or build your own. Find out more detailed information in this useful article from How To Germany about mortgage for foreigners.
Curious about the transaction process of a property sale in Germany? Check out our complete guide to buying a property in Berlin as a foreigner!