Every real estate market has its own unique features. When settling in Germany, it is natural to wish to own your own place. To help you deal with the German real estate market, we have partnered* with Your German Mortgage, a service from MLP, Germany's leading financial consulting company for academics.
*This content is sponsored by Peter Kleinwächter, Senior Consultant at MLP Finanzberatung SE.
Renting a property in Germany vs purchasing it
As an international who has just arrived in Germany, it could be easier for you to buy a property rather than renting it. That is because as a tenant you have to provide a lot of proof of your reliability based on past experiences renting a place, which are obviously not available if you are doing it for the first time.
Apart from your proof of income, you must show a confirmation from your former landlord saying your rent has been paid correctly in the past, and an extract from the German credit register (SCHUFA). Your credit score will most probably not be very good due to the lack of past data. Unfortunately, estate agents or property management services are not super understanding of your newcomer situation. In addition, there are several other people who meet all those criteria.
Luckily, as a real estate buyer the competition is much less intense. If you assure the seller plausibly that you are in a position to pay the required purchase price, nothing stands in the way of a quick purchase. A mortgage broker specializing in international customers can find the best available financing for you in the run-up to a planned property purchase and arrange it according to your criteria.
Are foreigners allowed to buy real estate in Germany?
In Germany, as in almost all EU countries, there are no restrictions for foreigners to buy property. It does not matter whether it is an apartment or a family home.
How to find a German property?
The three best-known real estate marketplaces on the Internet are immobilienscout24, immowelt and immonet.de. In those portals real estate agents publish their latest sales or rental properties. However, all other prospective buyers also search for houses or apartments here. It may be a good idea to start your search by walking or cycling through the districts you prefer to live in. You can find out about current offers in the neighborhood in the shop windows of the real estate agents or even banks located there. Usually, a brokerage fee of between 3.57% and 7.14% applies when a property is successfully brokered.
You can also buy new construction properties directly from the developer. In this case you will usually not pay any brokerage fee, but you have to wait 12 to 24 months until the construction work is finished and you can move into your apartment. New building projects can be found on neubaukompass, and all offers are also available in English.
How to finance a German Property?
This is much easier than you might think!
How much loan can I afford? If you are employed, use this rule of thumb: multiply your monthly net income times 100 and you have the maximum mortgage amount a German bank will lend to you. If this is not more than 100% of the purchase price of the property you can go ahead. The purchase costs (purchase tax, notary and property agent fees) have to be paid in cash.
Since these costs vary from state to state, you can use a mortgage calculator and find out the additional purchase costs in your state. The more equity you bring into the financing, the lower the interest rate will be. You will also be able to find this out in the mortgage calculator.
In Germany, interest-only loans are unusual. Banks usually expect a minimum principal repayment of 2%. At today's interest rates it would take 44 years to repay a loan in full with 2% repayment. Therefore, you can optionally repay up to an additional 5% every year to shorten the loan term or you increase the principal from 2% to a higher amount even later in the repayment phase of the loan. This saves a lot of interest. You can explore this effect playfully with the financing calculator.
Since German borrowers are very keen to have long-term financing that can be planned, the interest rate is fixed for the long term. In most cases, the fixed period is 10 years. For each additional 5-year step you have to include an extra margin of 0.30%. Variable interest rates are almost unknown and difficult to obtain for private property buyers. The interest rate is often much higher than for a long fixed interest period.
Financing student housing in Germany
Student apartments are a long-term secure and profitable investment. Many parents of students who come to Germany to study buy this special type of real estate investment. MLP is specialized in providing international investors with financing in Germany up to 70% of the purchase price.
What documents are necessary to buy a property in Germany?
Banks require a completed and signed self-disclosure form. This is a data sheet in which not only personal information, but also the income and asset situation is requested. Thus, the income must be proven. It is sufficient to send the last three salary statements if you are employed.A self-employed person should send the last two available income tax assessments and the annual accounts of the last two years prepared by a tax advisor. A current bank statement is sufficient as proof of equity.
Before you seriously start looking for a property, MLP can help you to understand the necessary financing. This service, as well as the implementation of the financing, is free of charge for you.
Buying a property in Germany
Qualify as a property buyer
Qualify financially with Your German Mortgage.
Find yourself a home
Choose the property you'll be calling your own.
Get your mortgage contract
It includes the guarantee for the bank on the property and has to be notarized.
Notarize the purchase contract
The German way to secure your ownership through an impartial notary.
Move into your new place
After the purchase price has been paid in full, you have full ownership.
Step 1: After MLP has qualified you financially as a potential property buyer, you look for the suitable property. By sending them the documents of the property, they will obtain the confirmation of the financing from the bank with the best interest rate within 3 to 10 work days. Some of the banks are also offering a lending certificate immediately after submitting the application to them
Step 2: The real estate agent will introduce you to an independent notary who will prepare the draft purchase contract for you. There are many notaries in the German metropolitan areas who can also provide the contract in an English translation. If you do not yet speak German, a translator must be consulted when the contract is notarized at the notary. The notary is obliged to answer all your questions in the notarization meeting. If you want to clarify these questions in advance and also want to check the contract, it is recommended to consult a lawyer.
Step 3: The bank sends you the loan agreement and a form for notarization of the land charge. This is the guarantee on the property for the bank and will be notarized together with the purchase contract. The notary registers this guarantee at the land registry. This process takes about 14 days until the official registration. Only then is the bank able to pay out the loan to the seller. The due date of the purchase price will be determined by the notary in agreement with you and the seller according to the time required.
Step 4: After this condition is fulfilled and the purchase price has been paid in full by you, the property has become your property and you can move into it.
For more information, please check Your German Mortgage or contact Peter Kleinwächter, Senior Consultant at MLP Finanzberatung SE (Jean-Monnet-Str. 4 – 10557 Berlin).
