Mortgage in Germany - Ultimate Guide For Foreigners
Updated: Mar 26
All you need to know to get the best mortgage offer in Germany.
Key takeaways
You need a valid visa in Germany to get a mortgage from a German Bank.
The first step is to contact your home bank in Germany to enquire about the mortgage conditions.
Low-interest rate or borrowing rate is not always the best offer. Therefore, it is essential to understand how your bank calculates the interest rate before signing the mortgage contract.
Real estate investors prefer low monthly installments.
In Germany, the borrower does not have to repay the complete mortgage within the mortgage tenure. The borrower can refinance the remaining principal once the mortgage tenure ends.
Bidding banks against one another is the best way to negotiate a mortgage offer. Hence, I encourage you to contact multiple banks before finalizing a mortgage offer.
Table of contents
Contact the banks and brokers to know the maximum mortgage you can get
How to calculate the maximum or minimum monthly installment.
The list of documents German banks need to issue a mortgage.
How do I negotiate with banks to get the best mortgage offer?
You found your dream house and want to get a mortgage against it. But, you do not know how to apply for a mortgage in Germany.
You want to get the best mortgage offer possible. But, you do not know how to get and evaluate an offer.
Don’t worry! After reading this article, you will have all the knowledge to apply, get and evaluate a mortgage offer in Germany.
1. The process of applying for a mortgage in Germany
Here are a few steps you have to follow to get a mortgage.
Get a rough idea of the maximum amount of mortgage you can get.
Understand the mortgage terms and conditions.
Create a list of documents German banks need to issue a mortgage.
Contact different banks and brokers to find the best offer.
Negotiate the mortgage offer with the banks.
Finalize a bank and submit the required documents.
Wait for the bank to create a draft of your mortgage contract.
Check the draft, and if everything is as you wished for, sign the contract.
Let's understand each step in detail.
You can also compare mortgage offers from different banks here:
2. The maximum amount of money you can borrow
You need to know the budget you are working with. Thus, it is the most critical step in your buying journey.
You can determine the amount of money you can borrow in two ways.
By contacting banks and brokers
By calculating yourself
2.1 Contact the banks and brokers to know the maximum mortgage you can get
2.1.1 First, contact your home bank for a mortgage
The home bank is where you have a salary account. Ask your bank consultant, "What is the maximum amount of money I can borrow to buy a property in Germany?"
The reason I prefer starting with the home bank is
You have a history with your home bank.
They have most of your personal details.
Thus, it is easier for your home bank to give you a mortgage offer.
2.1.2 Next, contact other banks for a mortgage offer
I would reach at least 2 more banks to get a mortgage offer. The reasons for contacting other banks are:
Different banks offer different mortgage conditions.
Few banks may reject your mortgage application. But, that doesn't mean you cannot get a mortgage elsewhere.
You get an idea of the current market conditions.
You can bid one bank against another to get a better offer. More on this in section 5.
2.1.3 Lastly, reach out to financial brokers for further mortgage offers
The financial brokers are middlemen who have relations with several banks. They connect banks and potential clients with each other. They earn by getting a commission from the bank after a deal is closed.
There are many financial brokers in Germany. The major payers are Dr. Klein and InterHyp. The purpose of contacting the financial brokers is the same as discussed in section 2.1.2.
2.1.4 Things to keep in mind while contacting banks and brokers for a mortgage offer
Never trust the words of a financial broker.
If they say you can get a mortgage at a certain condition. Take it with a pinch of salt. Never make a buy decision based on a broker’s words.
The decision of issuing a loan and the mortgage conditions lie with the banks. Thus, until you have confirmation from the bank, nothing is certain.
Kredit Anfrage vs Konditionen Anfrage.
Submitting a loan request (Kredit Anfrage) affects your SCHUFA score. But, requesting mortgage conditions (Konditionen Anfrage) doesn't.
It's a small thing but has a significant impact. Thus, confirm with your bank that the request should not affect your SCHUFA score.
2.2 How to calculate the maximum mortgage you can get yourself
The maximum amount of mortgage you can get depends on
Your net income
Your age
The cash you bring to the table
Here are the steps banks follow to calculate the maximum mortgage amount.
The bank will deduct your expenses from your net income.
The amount left can be the maximum monthly installment you can pay.
Lastly, banks multiply that amount by the number of years you can work until retirement.
The sum you get is the maximum amount of mortgage you can get.
For example:
Age: | 30 Years |
Household Income: | +4000 € |
Living expenses* (without rent): | -2000 € |
Other loans or monthly installments: | -500 € |
Cold rent saved or received from the property: | +700 € |
Operational expenses of the property: | -300 € |
Maintenance of the property | -200 € |
Maximum monthly installment: | 1700 € |
Maximum mortgage you can get: | (Max monthly installment) * (Years of active employment) * Months in a year = 1700 * (65 - 30) * 12 = 714k € |
* Generally, banks have a fixed amount they deduct based on the number of family members. They do not consider your actual expense.
As per this example, you have 1700 € left after deducting all the expenses. Thus, you can have at max 1700 € as a monthly installment and 714k € as the maximum amount you can borrow.
⚠️ NOTE: You have to bring at least "Nebenkosten" from your own pocket to be eligible for the mortgage. "Nebenkosten" is approximately 10% to 12% of the property's purchase price.
So, if you want to borrow 700k € from the bank, you have to bring at least 70k € to 84k € from your pocket.
Here is a calculator you can use to check the maximum mortgage you can take.
3. Understanding important mortgage terms and conditions
There are four essential mortgage conditions you should be aware of.
The mortgage interest rate offered by the bank.
How does the bank calculate the mortgage interest?
Possibility of special repayments (Sondertilgung).
How to calculate the maximum or minimum monthly installment.
3.1 The mortgage interest rate offered by the bank
It's a no-brainer that the lower the mortgage interest is, the better it is. But, a lower mortgage interest rate is not always better.
The effective interest may vary drastically based on how banks calculate the interest.
3.2 How does the bank calculate the mortgage interest
The borrowing rate offered by various banks can be the same, but the way banks calculate interest may vary.
The way banks calculate the borrowing interest rate can make a big difference in the effective interest rate.
For example, let's assume the below situation.
Mortgage amount | 100k € |
Interest rate / borrowing rate | 1% |
Monthly installment
| 1000 €
|
So, as per the above table, you took a mortgage of 100k € at a 1% borrowing rate per annum. You chose a monthly installment of 1000 €, consisting of a principal (916 €) and interest (84 €).
Bank 1: Calculates the interest rate on the principal left.
As you repay the mortgage, the principal will reduce over time. Thus, if the bank calculates the interest on the principal left, the interest you will pay will also reduce with time.
Continuing with the above situation.
Mortgage amount | 100k € |
Monthly installment
| 1000 €
|
After 1 year | |
Interest paid | 1% of 100k € = 1000 € approx. or 84 * 12 = 1000 € approx. |
Principal repaid | 916 * 12 = 11000 € approx. |
Mortgage amount left | 100k - 11k = 89k € approx. |
After 2 years | |
Interest paid | 1% of 89k = 890 € approx. or 75 * 12 = 890 € approx. |
Principal repaid | 925 * 12 = 11,110 € approx. |
Mortgage amount left | 89k - 11,110 = 77,890 € approx. |
You can see in the table above as the principal is reduced, the interest you have to pay is also reduced.
The image above shows the repayment plan of the borrower. If you add the interest paid over the mortgage tenure, the borrower will pay 4457 € in total as interest.
Bank2: Calculates the interest on the issued loan
Bank2 offers the same interest rate as Bank1. But, it calculates the interest on the issued loan (i.e., $100k) and not on the principal left.
This means that the interest portion of the monthly installment will stay the same throughout the loan term (i.e., $84).
In this scenario, the borrower will pay TWICE the interest (s)he paid in the previous plan.
Mortgage amount | 100k € |
Monthly installment
| 1000 €
|
After 1 year | |
Interest paid | 1% of 100k = 1000 € or 84 * 12 = 1000 € approx. |
After 2 years | |
Interest paid The interest portion of the installment is fixed and is not reduced with the principal. | 1% of 100k = 1000 € or 84 * 12 = 1000 € approx. |
As you can see in the table above, the interest portion of the installment is not changing over time.
To repay the mortgage, the borrower will take approximately 9 years (100k / (916*12)) to repay the mortgage. Thus, interest paid in 9 years will be (9*12*84 = 9072 €), which is twice the interest paid to bank1.
Thus, always check how the bank is calculating the interest. In Germany, banks disclose two interest rates.
Sollzins (Interest Rate / Borrowing rate): The interest rate that banks charge for issuing the loan to the borrower.
Effectivzins (Effective interest rate): It is the sum of “Borrowing Rate” and other costs that banks may incur like “property appraisal cost,” “transaction cost,” etc.
Effectivzins is the actual interest rate you will end up paying. So, always compare the Effectivzins of different banks instead of Sollzins.
3.3 Possibility of special repayments (Sondertilgung)
Sondertilgung is an optional payment once every year on top of monthly installments.
The amount you repay deducts directly from your loan's Principle. Hence, you can use it to repay your mortgage early and pay less interest.
Banks define Sondertigung as a percentage of your loan amount. Normally, it is 3% or 5% of the loan amount.
For example, if the Sondertilung is 5% and your loan amount is 100k €. Then, you can repay up to 5k € once every year without any penalty.
💡 TIP: I recommend having Sondertilgung as an option in your mortgage contract.
Having the Sondertilung option in your contract does not imply that you have to pay it every year. You can decide to pay 2k, 4k, or nothing.
3.4 How to calculate the maximum and minimum monthly installment
We discussed how to calculate the maximum monthly installment in section 2.2 already.
The bank will deduct your expenses from your net income.
The amount left is the maximum monthly installment you can pay.
Let's check how to calculate the minimum monthly installment.
In principle, banks want you to repay all the mortgage before retiring. Thus, check whether the minimum amount you want to repay every month aligns with it.
For example,
Borrower's age | 30 years |
Retirement age in Germany | 65 years |
Mortgage amount | 100k € |
Mortgage interest rate | 2% |
The minimum principal borrower has to pay to finish the loan before retiring. | (Mortgage amount) / (12 * (Retirement age - Borrower's age) 100k / (12 * (65 - 30)) = 238 € approx. |
Monthly installment | Monthly interest + Monthly principal ((2% of 100K) / 12) + 238 = 404 € approx. |
As per the table above, your minimum monthly installment to repay a mortgage of 100k € is 404 €.
You must be wondering why understanding the calculation of minimum monthly installment is important.
It is because an investor wants to get the maximum positive cash flow from the property. That is the amount left after deducting all the expenses from the rent.
The low monthly installment helps the investor to achieve it. Thus, keeping the monthly installment as low as possible is vital for an investor.
Even regular home buyers should consider low monthly installments to reduce the burden on their monthly expenses.
⚠️ NOTE: The monthly principal and the total interest are inversely proportional to each other.
It means the higher the principal you repay, the lower the total interest you pay. Likewise, the lower the principal you repay, the higher the total interest you pay. Hence, find a balance between the two.
4. The list of documents German banks need to issue a mortgage
Banks will need your and the property documents to give a mortgage offer. Let's first check the documents the bank needs from you.
4.1 Borrower's documents German bank needs to issue a mortgage
If you're employed:
Last 2 or 3 months' salary slips
December salary slip of the previous year
Lohnstuerbescheid/Einkommenstuerbecheid: It is a summary of the salary you received in a particular year. You get this document from your employer every year.
Job contract: Banks prefer to give a mortgage to someone who has a permanent (Unbefristet ) working contract.
If you are self-employed, the bank would like to see a stable source of income. To prove it, you have to show:
Financial statement of your business, i.e., Balance sheet, Income statement, and Cash flow statement.
2 or 3 years of business tax returns
2 or 3 years of your tax returns
Bank may ask for other documents based on your business or nature of work.
Other documents:
Insurance contracts, if any. E.g., life insurance, Car insurance, etc. Banks want to know what portion of your income goes into paying insurance premiums.
Proof that you can pay Nebenkosten. You can prove that by showing one or a combination of the following.
Account statements
Bauspar konto, if any
Stock trading account
Any other mortgage-friendly scheme you are enrolled in.
Retirement account statements (Rentenversicherung): The document shows the amount you have in your retirement fund and approximate monthly income after you retire.
For banks, it's preferable that the borrower finishes their mortgage before retirement. But, if it's not possible, this statement helps banks decide whether the borrower can repay the mortgage after retirement or not. So the younger you are, the better it is.
You receive this document automatically once per year.
You can also request the document online from Deutsche Rentenversicherung’s website.
Personal identification documents: Passport and Permanent residence card (Niederlassungerlaubnis).
⚠️ Note: If you do not have a permanent residence or citizenship, getting a mortgage could be difficult.
Lastly, if you are applying together with your spouse, the same documents would be required for your spouse also.
Applying together with a spouse does not improve the interest rate, but it increases the amount of credit you can get.
4.2 Property documents German banks need to issue a mortgage
Property expose: Expose contains the basic information about the property like
Property address
Construction year
Purchase or Ask price
Broker’s commission, if any
Property's images, etc.
Living area calculation (Wohnflächenberechnung): The document shows the size of every space/room of the property.
Floor plan (Grundriss): A type of drawing that shows the property's layout from above.
Site plan (Lageplan): The document shows a large-scale drawing of the full extent of the site for an existing or proposed development.
Land register papers (Grundbuchauszug): The document shows the names of the current and previous owners, third-party rights (e.g., mortgage), and the description of the property.
Energy efficiency certificate (Energieauweis): The document shows the energy efficiency of the property or property building.
Declaration of division (Teilungserklärung): As the name suggests, it documents how the property is divided. So, which portion of the property building belongs to you and which comes under the House Union.
Rent contract (Mietvertrag): If you buy a rented property, the bank will also require this document.
The above list covers the minimum set of documents a bank may request. Banks may ask for further documents depending on your personal situation and the property you plan to buy.
5. How do I negotiate with banks to get the best mortgage offer?
You can negotiate with banks on the following terms of the mortgage contract.
Effective interest rate (Effectivzins): The lower, the better. But, keep an eye on how banks are calculating the interest. Refer to section 3.2 for more details.
Monthly installment: Investors prefer a lower monthly installment. Refer to section 3.4 for more details.
Fixed vs. variable interest rate: Fixed interest rate means the borrowing rate will remain fixed throughout the mortgage tenure. Variable interest rate means the borrowing rate may change during the mortgage tenure. During the low-interest period, I recommend fixing the interest rate.
Mortgage tenure: Length of the mortgage contract. Longer the mortgage tenure with a fixed interest rate, the higher the interest rate. So, find the right balance based on your situation. In Germany, the borrower does not have to repay the complete mortgage by the end of the mortgage tenure. Instead, they can refinance the remaining principal once the mortgage tenure ends.
Insurances or other schemes on top of the mortgage: Some banks make it mandatory for the borrower to take insurance or other schemes. Taking insurance is not free, and the borrower has to pay the insurance premium on top of the interest. I do not prefer to take such insurance until I feel a need.
Hence, to negotiate mortgage terms and conditions, first, you need to contact different banks and brokers.
Different banks will present different offers to you. And you can use those offers to bid one bank against another.
For example, the below table shows mortgage offers from 3 different banks.
| Bank 1 | Bank 2 | Bank 3 |
|---|---|---|---|
Effective interest rate (Effectivzins) | 2% | 1.9% | 2.5% |
Monthly installment | 700 € | 800 € | 700 € |
Insurances | No insurance required | No insurance required | Incapacity to repay mortgage insurance |
All banks in the example provide 200k € credit with a fixed interest rate for 10 years. So now, you can bid Bank 1 and Bank 2 against each other to get the best of both worlds.
For me, the ideal offer would be a low monthly installment and a low-interest rate. Thus, I am good if one of the banks can offer me a 1.9% or lower interest rate with a 700 € or lower monthly installment.
You can ask Bank 1 to reduce the interest rate or Bank 2 to reduce the monthly installment. The best will be if Bank 3 reduces the interest rate from 2.5% to 1.9%.
In short, it's a free market; go shop around and look for the best offer. Don't hesitate to negotiate or bargain with banks. You will be surprised by how flexible banks can be.
Once you find the best mortgage offer, finalize the bank and submit all the required documents.
The bank will evaluate all the documents and the property. If everything comes out fine, the bank will prepare the mortgage contract.
You can proofread the contract to check if everything looks right. If yes, then you are good to sign it.
💡TIP: I recommend signing the mortgage contract a week before signing the purchase contract (Kaufvertrag).
As per German law, you get 14 days to cancel the mortgage contract without giving any reason. It is called "Widerrufsrecht" in German.
So, if something goes wrong and you do not get the property, you can cancel the mortgage contract without any penalty.
6. The financial terms used by the German banks
Although many banks in Germany have English-speaking consultants. But, knowing a few German words can exponentially improve your visit's outcome.
6.1 Darlehensbetrag (Loan amount or Principle)
It means how much credit you want to take from the bank.
If you take less than the property's purchase price, you have to prove bank that you have the rest of the amount.
You can even take credit for more than the purchase price. For example, credit to renovate the property. But, of course, it is possible only if you have enough income to repay it.
6.2 Nebenkosten
It is the amount that covers the costs involved in buying a property in Germany.
The below table* shows the costs that come under Nebenkosten.
Land transfer tax (Grunderwerbsteuer) | 3,5 - 6,5 % (varies from province to province) |
Grundbuchkostenrund | 0,5% |
Notary Costs (Notarkosten) | Approx 1,5 % plus tax |
Real estate broker commission (Maklergebühren) | 3,5 - 7 % |
Property appraiser (Gutachter ) | Approx. 450 €, depending on the property |
Moving costs (Umzugskosten) | 500-2.000 €, depends on the city and the number of things to move |
Renovation Costs (Sanierungskosten) | The renovation cost depends on the condition of the property. You can also finance it by the bank. |
The fee for taking the credit (Finanzierungsnebenkosten) | Depends on the bank and your contract. Usually, it is part of the mortgage interest you pay. |
It is the sum you need on top of the property’s purchase price.
So, for example, you want to buy a property whose sale price is €250k. Then, you need to bring 17.5k (7% of 250k) to 30k (12% of 250k) from your pocket.
Thus, the total cost to buy the apartment is 250k € + (17.7k to 30k) €.