German Mortgages Explained
How much should I have saved for my downpayment?
In Germany, lenders will extend a loan based primarily on two criteria, firstly the amount of savings you have at your disposal for a downpayment, secondly, the ability and likelihood you can pay the loan back over time. Lenders will want you to use your savings to cover all upfront costs, in this way, in case you cannot pay the mortgage the value of the house can cover the loan. If your savings are higher than your purchasing costs, you can use this to reduce the so-called Loan-to-Value (LTV) ratio. This is the ratio of the loan to the value of the property as assessed by the lender.
Unlike most countries, lenders in Germany will finance your mortgage up to the full property value--if you are a permanent resident with tax income in Germany. For example, if you have purchasing (i.e. transaction) costs of 25,000€, and savings of 25,000€ your LTV will be 100%, assuming the property price is the same as the value the lender puts on the property.
However, you must keep in mind that lenders will reduce their interest rate if you have a larger down payment. While differs between lenders, the rates often drop quite a bit (say 0,3%) until the Loan-to-Value is around 80%, after which there is less change. EU blue card holders are usually required to have an LTV of 90%.
For new home buyers it is often difficult enough to come up with the money to pay for the purchase costs. And you want to realize that it is much more important to buy the right size house, so you can avoid the large purchase costs of up to 15% when you have to move. To find out what you can afford, try our free affordability calculator.