Getting a mortgage in Germany

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Dr. Christian Mulder May 13, 2019
How get Mortgage in Germany
Mortgages in Germany are complex but we are here to help you! As a licensed German mortgage broker we can help you find the right mortgage suited to your needs. Unlike other brokers, we use technology to find you the right German mortgage from over 400 German mortgage lenders.

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How to find the right mortgage in Germany:

Buying a property in Germany remains a great opportunity, but as a first-time buyer, you may face a number of unknowns. The process can be nerve-wracking. To make the buying experience a bit easier, we will show you how it works and includes tips to help guide you through the process and prepare you for the purchase of your first home in Germany.

Is now a good time to buy property in Germany?

As your very first step, you will want to consider whether it makes sense to buy or whether it is better to just rent. With interest rates at near historic lows, owning a home is relatively cheap. Still, you want to check the numbers. For example: transaction costs are very high in Germany, so you will want to check how long it takes before you make up these costs. Hypofriend has a simple to use tool that calculates how long you need to own the property for it to break even for you. The tool shows you how your financial wealth and cash flow (ie what you keep in your pocket vs spend on rent or mortgage) evolves over time, depending on whether you own a home or not.

Decide between buying or renting

German mortgage rates for 05/2019 (updated: 13th May)

Here are the mortgage rates for germany for 5, 10, 15 and 20 years for Loan-To-Value of 80.

Fixations:

The interest rate graph shows the respective interest rate offers comparing Germany’s best mortgage lenders. The interest rates apply nationwide. Sometimes regional discounts may apply.

Can you afford a German mortgage

Before you then start your property search, you want to understand how much you can afford: ie will the banks indeed provide you with a mortgage for that dream home or that pathway to financial wealth. Here too Hypofriend can help you with a simple tool that does the numbers for you. In Germany, as else where, the two key factors for affordability are your disposable income and your savings:

  1. Your disposable income is calculated by taking your monthly net income and deducting all recurring fixed costs, like insurance, rent etc. For average incomes, a general rule of thumb is that your mortgage monthly payments cannot exceed 40% of your net income. For higher incomes the ratio maybe somewhat higher, for lower incomes somewhat smaller. For self-employed it will be lower as many banks tend to assume high insurance costs, and hence banks often require a minimum net monthly income of about 2,000 Euros.
  2. Your total savings are relevant because this is what you will use as a down payment towards your mortgage. You must ensure that you at least cover all purchase fees (real estate commission + property tax + notary fees). This can be as little as 5% and high as 15% depending on where you buy the property and who you buy it from. Often times, newly built projects are bought directly from the project developer, hence saving you up to 7,14% in real estate commission. Therefore if you do not have much savings compared to your income you will want to consider purchasing a new home or another one with low or zero real estate commissions.

Check online how much you can afford

How to qualify for a German Mortgage

To be able to qualify for a German mortgage you will have to satisfy the different lending criteria from the different lenders. Unfortunately, each lenders has its own criteria which makes qualification a difficult process.

The main lenders in Germany are ING DiBa, Sparkasse, Commerzbank and Deutsche Bank. Unfortunately, each lender has different specific requirements and rules. General guidelines to qualify for a mortgage include being able to provide the following:

Requirements for employees

  • Signed self-disclosure from Hypofriend
  • Three most recent payslips from a German employer
  • A proof of equity of funds to cover the purchase fees
  • A signed mortgage proposal from Hypofriend

Requirements for self-employed & freelancers

  • Your two most recent tax declarations "Einkommenssteuererklärung"
  • Your two most recent tax returns "Einkommenssteuerbescheid"
  • Your profit & loss account for 2018 ("BWA: Betriebswirtschaftliche Auswertung")
  • Your balance sheets incl. profit-and-loss calculation for 2018 and 2017 ("Gewinn-Verlust-Rechnung")
  • For non-German residents, different requirements apply. You can sign up to Hypofriend to create your digital
  • self-disclosure form and upload your documents into our secure document upload section.

For non-German residents, different requirements apply. You can sign up to Hypofriend to create your digital self-disclosure form and upload your documents into our secure document upload section.

After finding a home, finding the right mortgage product is surely the most difficult. Fortunately, Hypofriend can help you here too with concrete advice. We are proud to say that we have the best engine to advise you on the right mortgage. Or rather the only engine in the world that we are aware off. Our proprietary optimal mortgage tool has been designed based on some of the most advanced advisory in debt to provide you with concrete answers.

The three most important questions for your German Mortgage

  • How long should I fix the interest rate?
  • How quickly should I pay off my mortgage?
  • How much should I initially pay down?

How to choose the right German mortgage

There are several factors that play a key role in determining what is the right product for you, including:

  • Likely departure

    Your expected stay plays a critical role in determining the length of your fixed interest period. Lock in too short and you may face a high loan balance with rising interest rates. Leave earlier than expected and you may have to pay the bank the lost interest payments back.

  • Income and income growth

    Understanding your income and how much your income might grow is key to understanding your repayment capacity

  • Age

    Your age and especially your retirement age are relevant, as this will have an impact on your disposable income in the future

  • Willingness to rent

    If you are willing to rent your property if leave unexpectedly early, there is a higher security for you to take on more risk

  • Investment alternatives

    If your alternative investments yield a high return for you, there is no point in repaying your mortgage quickly.

Getting the mortgage decision wrong can be very costly — it can easily cost you a quarter of your home over a 30 year period. For example, paying off too quickly in a low interest rate environment, or too slowly when your income growth is modest and you cannot afford the risk of an interest jump when you refinance. These are complex problems, that require advanced calculations and interest prediction models to guide you.

To find an indication of the right mortgage for your situation use the link below, it will take you through a funnel with a set of basic questions and at the end, you get the core advice and can sign up to get a report.

Find the right mortgage

8 factors that determine the right German mortgage lender

After you have found the right mortgage product — we will help you find the mortgage lender that offers this product at the lowest price. Hypofriend is integrated with every major mortgage lender which includes all major banks as well as smaller, regional Sparkassen, which amounts to over 400 partner banks in total.

There are a number of different features that we track in order to finetune your search and match you with the best lender:

  1. Regional pricing discounts

    Some lenders will offer regional discounts of 20 basis points, as a German mortgage broker we are notified and can match you to the right lender.

  2. Property valuation

    Some lenders may offer a higher property valuation. A higher property value will imply a more favourable Loan-To-Value (LTV) and in turn a better interest rate.

  3. Commitment fee free period

    Commitment fee free periods are important for buyers who are looking to buy new properties, some lenders offer this feature at more favourable terms.

  4. Fixed interest period

    Not all lenders are competitive across all products, so it makes sense to find the lender who is most competitive for your given fixed interest period .

  5. Flexibility of repayment

    If repayment flexibility is something you want to build into your mortgage, some lenders offer this at more favourable terms while others may charge you excessively.

  6. Prepayment penalties

    Cancelling or selling your property before your mortgage contract ends will result in prepayment penalties , if this is a possible outcome, we will match you with a lender with more favourable terms.

  7. Modernisation costs

    If you want to add the modernisation costs into the mortgage, it makes sense to find the lender that regards this as an investment into the property, as this will improve the LTV and in turn will give you a favorable rate.

  8. Speed and/or specific lending criteria

    The complexity of the process and the vast amount of individual requirements per bank, make it essential that we pair you with the lender that is quick when their is pressure from the seller and time is of importance


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