Process for getting a mortgage
A standard mortgage in Germany can cover up to 80% of the property value and is paid over a fixed term, usually 10 years. At the end of the term, you either pay the balance owing or refinance with another mortgage at the prevailing market rate.
The German banking system requires evidence of a good and stable banking history. When an application for a mortgage is made in Germany, the bank will contact Schufa (a credit information agency) and request a copy of the mortgage applicant’s credit rating (Bonitätsauskunft). More information can be found at Meine Schufa (German) or the Schufa website (English).
A Schufa report plays an important part in determining whether a mortgage application is rejected or not. As a foreigner you might not have a Schufa record, which means you might need to show proof of your credit history in your home country as part of your application.
Once you are ready to go ‘loan shopping’, it is important to compare different banks and negotiate. There are many loan advisors who will help you find the best deal; some of them, such as LoanLink, cater specifically to the needs of expats and offer their services in English. Another useful resource is Hypofriend, which allows you to find out how much you can borrow and pick the best mortgage.
Mortgage/home loan (Hypothek)
The Hypothek or Hypothekendarlehen is the lien you give to a bank in the form of property (real estate) for which you receive a loan in return (i.e. the bank can seize the collateral if you default on your repayments). A Hypothek normally covers around 60-70% of the market value, so you have to finance the rest on your own.
Types of property loans
Annuity loan (Annuitätendarlehen)
This is the most common type of mortgage in Germany and normally has a term of 10 years (5-30 years are possible in some cases). With this type of loan you repay your debt in annuities (Annuitäten), a yearly repayment consisting of interest and principle. At the start of the loan period you pay more interest than principal, later the amount of principle being repaid increases. At the end of the term, the remaining balance has to be paid in full or refinanced with a new mortgage.
Variable rate mortgage (flexibles Darlehen)
The interest rate you pay is based on Euribor (Euro Interbank Offered Rate) and adjusted up or down as it changes. This type of loan means you can make a partial or complete repayment of the loan every three months, or convert it into a fixed-interest loan. This form of mortgage can be attractive if Euribor levels are low.
Interest-only loan (also Zinszahlungsdarlehen)
Endfällig means ‘due at the end’, Zinszahlung means ‘payment of interest’. During the term of this loan, you only have to pay the interest, which makes each instalment seem very low. At the end of the term, you have to refinance with a new mortgage or repay the balance in full.
Building society loan (Bausparvertrag)
With a building society loan you first save money in your account with a building society (Bausparkasse), you then combine your savings with a loan for the remaining amount you need to build or buy a house. A contract will specify interest rates for your savings and for your loan, as well as the amount of money you want to save and the amount you want to borrow later. This type of loan is subsidised by the German state.
There are two main government-sponsored programmes for German taxpayers that can be useful if you want to buy or build a property.
Home Ownership Programme (Kreditanstalt für Wiederaufbau or KfW)
This programme is for anyone who wants to buy or build a house to live in Germany as well as for everyone who is investing to make an older residential building more energy-efficient. It offers special loan conditions and can finance up to 30% of the total cost (maximum €100,000).
KfW financing can cover costs for the purchase of land or construction. It can also cover additional costs, including: notary or broker fees, property transfer tax and the acquisition of shares in a housing cooperative. In some cases, this financing can be included alongside a standard bank loan and may carry a lower interest rate.
Riester's pension (Riester Rente)
This is primarily for people of pension age and persons under the statutory pension insurance scheme, although some other people can qualify (unemployed, some self-employed, etc.); Wohn-Riester is part of the German Retirement Assets Act. It serves to finance the purchase or construction of privately used residential property, or the acquisition of cooperative shares.