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Mortgages for Expats in Germany

Author: Jim Newham
Submitted: September 2013

German lenders retained their inherent cautiousness during the credit crunch. Provision of mortgages continued to be based on a strict assessment of the borrower's ability to repay. As a result, the economic downturn did not affect German banks as much as in other countries. They were also unaffected by the vacuous, target-driven wishful thinking that infected lenders in many other countries.


Requirements

There are no legal restrictions to foreigners obtaining a mortgage in Germany. However, most banks have very exacting requirements. Before you are considered for a mortgage, most German banks will want to see that you have sufficient assets and that your financial situation is stable. Lenders may additionally require that you are permanently employed, or, if you are self-employed, that you can provide tax and accounting records for the last three years. Your age and the number and extent of your other financial obligations may also affect your ability to secure a loan. If you are not resident in Germany, obtaining a mortgage will be harder still.


Terms

Foreign borrowers can normally expect a loan-to-value ratio (LTV) of around 60%. This means you will have to come up with a down payment of up to 40% of the property value. Some Germans take out another loan to help finance this down payment. There is also a minimum loan figure of €25,000. Note that the LTV goes up to 80% if you are buying multiple flats.

The full repayment period of the mortgage is generally 30 years or up to retirement, whichever comes first. Some banks offer short-term mortgages that last 10 years, after which time you will need to renegotiate your mortgage using current interest rates and terms.

On the plus side, interest rates are low. The average rate for foreign borrowers is approximately 3.5-4%. Though interest rates are normally fixed, some banks offer flexible repayment terms in which you can choose to pay from 1% to 10% of the total loan in any one year. Furthermore, if your request one, many banks will make a mortgage agreement in principle. Obtaining such an agreement means you can show the vendor that you are financially viable and a serious contender for purchase.


Mortgage types

Fixed rate and variable rate mortgages are both available, though the former is more common. The fixed rate length normally varies from three to ten years, though longer periods may be permitted. There are also the usual options for full repayment or interest only. Note that interest repayments can be tax deductible, which can make interest-only mortgage products more popular than they otherwise would be.

With variable rate mortgages in Germany, the interest rate is pegged to the Euro Interbank Offered Rate (Euribor for short). Necessary adjustments are made to German rates every three months. You can find the current Euribor rates here:

https://www.euribor-rates.eu/current-euribor-rates.asp


Application

In addition to the mortgage application form, documents you need to apply for a mortgage as an employee include:

  • Passport, driving licence or other means of ID;
  • proof of address;
  • proofs of income: 3 months' payslips;
  • previous two tax certificates;
  • testimonial from your employer;
  • letter of referral from your bank; and
  • previous 6 to 12 months' bank statements.

After you have submitted your mortgage application, your lender will request a copy of your Bonitätsauskunft (credit rating information) from the credit checking company Schufa. Assuming that this document meets the lender's requirements, you should be granted a mortgage.

 

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