Buying a property in Germany - Your questions answered.
Buying property in Germany can be quite daunting and when you have never done it before, you probably have a lot of questions about the whole process. I have collected some of the question I typically get asked and have tried to answer them for you:
Can a foreign investor buy property in Germany?
Yes. The nationality of an investor has no bearing on the acquisition of real estate in Germany.
As a foreigner can I get a German mortgage?
Generally speaking, yes.
How much and on which terms depends on your desired property, your financing requirements and where you pay your taxes.
Wouldn't it be better to get a mortgage from my ‘home country’ or should I get a mortgage from a bank in Germany?
Getting a mortgage from your home country is probably a little bit easier, but generally speaking if the property you want to purchase is in another country, your 'home' bank will probably not finance that property and you will have to get financed through a German bank.
They say you need a lot of paperwork and information when you want to get a German mortgage. What do I really need?
Additional cost like Estate agent fees etc.
Length of your loan
Country of residence
What types of personal documents are generally required to get a mortgage?
Credit institutions require proof that the data you have supplied in your mortgage application is indeed true. So they will ask you for this information:
Self disclosure form
Copy of your proof of income over the past three consecutive months
A full copy of the income tax return for the previous year
Rental list and leases (for leased property)
What types of documents about the property are generally required to get a mortgage?
Proof of fire insurance certificate (copy of the insurance certificate)
Floorplan and living space calculation
Declaration of division
Purchase agreement (draft)
Land register excerpt
House money calculation
Exposé (if you are seeking to finance a new construction)
What types of German Mortgages are there?
There are a lot of different options available to you, here are just some of the typical ones.
(1) Fixed Interest Annuity Loan
This is the most common type of mortgage. The borrower pays a fixed payment each month on the liability plus interest over the period of the loan. At the beginning of the loan, the portion paid on the interest is much higher than the principle.
(2) Interest Only (Zinszahlungsdarlehen)
Payments are made on the accruing interest only. None of the payment goes to repaying the loan balance. Though this keeps the payments low, the balance owed increases as interest is added but the actual loan is not being paid of. This should only be considered as a short term or interim loan.
(3) Variable Rate Loan(Flexibles Darlehen)
Variable rate loans work off a variable rate set by the Euribor (Euro Interbank Offered Rate). Based on the how the interest rate changes, the payments will increase or decrease every three months.
(4) Building Society Loan (Bausparvertrag)
This very popular type of loan is linked to a building society savings programme. The payments (all or part) are made to the savings programme and in time, these savings are used to pay off the loan.
(5) Bank Home Ownership Programme – KfW (Kreditanstalt für Wiederaufbau)
This program is geared towards homeowners and can be used for existing properties or new construction. These types of loans offer incentive programs and very competitive interest rates.
As a foreigner do I get the same interest rates as German national would get?
Germany has some of the lowest interest rates within the European Union and is therefore a very attractive investment market.
The average lending rate reported by the Deutsche Bundesbank for non-residents is between 2.4% and 3.9%, so you can expect to get a mortgage deal within that region.
Will the bank finance 100% of my purchasing cost?
Probably not. But again it depends on your individual circumstances. Non-german residents can generally borrow up to 50% of the value of an apartment purchase and occasionally up to 70% on an investment apartment buildings. If you are a German resident this can go up to 100% for residents.
How high does my deposit (down payment) need to be?
On average foreigners ought to have 40-65% of the purchasing cost as capital as banks will generally only finance about 30-50% of the purchasing price including associated costs. Associated costs vary according to county (Bundesland) and therefore depend on the location of the property (Estate agent fee ranges between 8-15%, and taxes vary too).
How long will my mortgage run for?
Typically the term of a loan is between 20 to 40 years. However, the term over which the interest is fixed, doesn't usually exceed 20 years. So, when deciding on the maturity of a fixed interest, you should also consider that there maybe an increase of the fixed interest at the end of the first 20 years. This will then of course affect the amount you have to repay each month.
How long does it take to get a mortgage approval?
After all documents are complete and have been successfully submitted, it generally takes about five days for the approval process, and the after the customer has accepted the loan offer it generally takes another five days for the final contract to come through. (Please be aware that due to special circumstances, like the current Covid-19 pandemic, these times may vary).
What type of associated costs will I have to pay?
Buying a property in Germany can be expensive due to additional costs associated with the purchase.
These can be:
• Notary fees (Notar) = 1.75% - 2%
• Property transfer tax (Grunderwerbsteuer) = 3.5-6.5% dependent on area • Estate Agent fees (Makler) = 3 to 6% plus VAT dependent on area
What type of taxes will I need to pay when I buy and own a property in Germany?
Everyone who buys and owns real estate in Germany is obliged to pay some form of taxes, including non-recurring and recurring taxes*. (*Please be aware that we can only provide you with an indication as to what type of taxes you can expect to pay. You will have to speak to a tax consultant to discuss your individual circumstances).
Non-recurring taxes Property transfer tax (Grunderwerbssteuer) A property transfer tax of 6% of the purchase price applies 4 to 8 weeks after the estate is sold. The notary notifies the tax authorities.
Recurring taxes Taxes on taxable income The tax rate is progressive and ranges from 15% to 45%. On top of income tax, the so-called solidarity surcharge is levied at a rate of 5.5%. Property tax (Grundsteuer) Property tax is an annual tax with quarterly instalments. Its calculation depends on the city as well as on the age and value of the property. For instance, you would need to pay approx. €480 p.a. for a 95sqm apartment in Berlin. Double taxation agreements Germany has made tax treaties with about 90 countries to avoid double taxation. These agreements aim to avoid taxpayers being charged taxes more than once on the same income for the same period.
Tax calculation +Rental income − Depreciation − Interest for loan − Insurances − Property management cost − Property tax − Additional cost = Taxable income
As a foreign investor can you demand a residence permit if you buy a property in Germany?
No. A foreign investor is not entitled to a residence permit after purchasing real estate in Germany. The right of residence depends on a number of factors. The most important factor is the home country of the investor. Citizens of the European Economic Area (EEA) have the right to live in Germany. If the investor’s home country is a so-called positive state, a three month stay is granted without a visa. People from all other countries require a visa. However, the right of residence can derive from occupation, family connections, or studies and research.
Is it useful to consult with a lawyer when negotiating and settling a real estate investment deal?
A real estate transaction is connected to numerous legal aspects with different interests involved. The buyer must understand the contractual agreements and what is actually bought because certain warranty rights apply. However, warranty rights vary depending on the purchased property and whether it is newly built. In addition, other rules apply to apartments in old buildings. Moreover, dealing with the land register is quite complicated and land register issues can have far-reaching consequences. Finally, all contracts must be in German and read out loud in German. There may be translations but they are not binding. Only the German version of the contract and supporting documents are legally binding. A foreign investor should know the contract’s legal meaning and consequences. A lawyer helps the investor to understand the contract and explains the legal implications. The lawyer represents the buyer’s interests only.
As you can see there are a lot of questions that you will probably need to get answered. We are here to help you and guide you through this process. So if you need support or would like to find out how much you can borrow, check out our mortgage calculator or give me a call.