How much are you worth to your mortgage bank.
Regardless of whether your buying a property for the first time, for yourself or simply as an investment, chances are high that you will get a mortgage to cover at least some of the costs. And why not? Interest rates are at an all time low, and will remain so for a while, housing prices are going up, the rental market remains fairly stable.
In order to qualify for a banking loan, banks undertake a string of checks to see how credit worthy you are and how much you can really afford. If you are not a german national these checks can sometimes be more stringent, as banks want to minimise their risks. Banks generally only lend up to 90% of the property value, but we have had customers where we were able to finance even more than 90%, all depending on the individual background.
Here are the areas banks and loan companies will pay attention to when calculating how much they can lend you.
How much capital you have available and can put towards the purchase.
Your income - How often do you get paid and for international investors wanting to buy in Germany, in which country and currency you receive your salary. Where does it come from? Are you employed or self-employed etc.
The rate of your interest as well as the amount you are able or willing to pay back over the months and years.
The actual market value of your property. Credit institutes will generally send an independent expert to confirm the value of your intended property before they hand over the money.
In addition to the above, the banks will now look at your disposable income and calculate from that how much you are able to afford to pay for a monthly loan. There are a couple of options as to how this can be done (depending on the bank and your personal circumstances):
The banks look at all your monthly expenditure (financial commitments like loans, rent, cost of living, etc as as well as a certain amount of reserve funds) and whatever is left over after all these other commitments have been paid, this can then be used as a point of calculation to identify how much you are able to afford on a monthly basis and as a total loan amount. Bear in mind, that most banks work with averages for these financial commitments - typically these are about 1,200 Euro per couple plus 200-300 Euro per child.
Another way of how banks calculate how much you can afford, is by looking at your net income (including income from rent, insurances, fonds, child grants etc) multiplied by 110. This then gives you your maximum available credit amount. This income however has to be stable and come in regular intervals.
Regardless of which options the banks favour, it is important that you have good creditworthiness (ie. no negative Schufa Entry) and can proof that you have regular income. Also, please bear in mind, that banks, even though you may on paper have a net income x 110 equaling xxx amount, they may not lend you quite as much due to the fact that interest rates are very low at the moment and may later during the lifetime of your loan go up and would increase your repayment amount above your maximum affordable payment amount.
This is all fair and well if you are employed and have a regular monthly income. If you are self-employed, banks will not look at your monthly income but towards your annual salary over the last two to three years. The longer you have been self-employed the more attractive you become to the banks, as they can see whether your business plan adds up and you are profitable. However, even if you have been a successful entrepreneur and can proof that your income is stable, some banks are only prepared to loan you a smaller amount (generally about seven to nine times your annual salary).
But just as explained as before, due to the low interest rates at the beginning and explained above, banks may not be prepared to give you the full nine times of your annual salary. In my experience however, whilst the process may have been a tiny bit more difficult, we have been successful in getting out clients the loans they required to get their dream property.
If you wish to find out just how much can afford for our next property loan, then check out our mortgage calculator, or get in touch with me.