Getting a Mortgage in Germany as a Foreigner

It’s easy to see the appeal of Germany; robust economy, rich in history, and high quality of life. What’s not to love? Many are drawn to the country enough to want to invest a pretty penny in it. 

If you’re one of those aspiring individuals, you might be wondering: how do I get the money for this sort of thing? Luckily for you, German mortgages are available to foreigners too, but with a few twists, of course. Stick with us to find out how to make sense of the whole process.

Are You Eligible for a German Mortgage?

Before applying for a mortgage in Germany, it’s important to assess your eligibility. German lenders generally evaluate several factors to determine if foreign buyers qualify for a mortgage.

Residency

It’s not mandatory to be a resident of Germany to obtain a mortgage, but it certainly does help things. Lenders typically view residents more favorably because they are perceived as less risky. If you’re a non-resident, you may face stricter requirements, such as a higher down payment (usually around 20-30%, even 40% in some cases) or a more detailed review of your financial background.

Expats and EU citizens living in Germany generally have an easier time qualifying. Non-EU residents may need to provide additional documentation or collateral.

Creditworthiness 

German lenders place significant importance on creditworthiness, which helps them assess how reliable you are when it comes to repaying debt. If you’ve lived in Germany for a while, banks will likely check your SCHUFA benchmark score (the German credit rating system). The values are between 100 and 600, and the lower the score, the lower your risk of default.

If you are new to the country or a non-resident, lenders may request a credit report from your home country. Having a strong credit history, with no outstanding debts or missed payments, is essential. You can use our mortgage calculator to estimate your potential loan amount and monthly repayments before applying for a mortgage.

Income and Employment

Other than residency and credit history, few things will affect the outcome of your mortgage journey like your income and employment status. Stable, long-term employment in Germany can make you a more attractive candidate. It acts as a sort of a guarantee that you won’t just hop on a plane and leave without paying off your loan.

Non-residents or those working abroad can still be eligible, but you will need to provide detailed proof of income, such as payslips or tax returns. Additionally, if you’re self-employed, be prepared to submit more documentation to prove that your income is steady and reliable.

Debt-to-Income Ratio

In order to ensure you can afford mortgage repayments, German lenders will thoroughly assess your debt-to-income ratio. This ratio compares your monthly debt payments to your monthly gross income. 

In Germany, banks typically prefer that mortgage payments do not exceed 35% of your gross income. If you have high levels of debt elsewhere, such as credit cards or personal loans, you may need to pay those down to improve your chances of getting a mortgage.

Age

Age can also be a determining factor in whether you’re eligible for a mortgage. Many German banks prefer that the mortgage term ends before the borrower reaches retirement age (usually around 65-67).

If you are older, lenders may offer you a shorter repayment period, which could increase your monthly payments. Younger buyers, especially those in stable employment, are often viewed more favorably, since they have more time to repay the loan.

Steps to Getting a German Mortgage as a Foreigner

To navigate the process smoothly, it’s essential to be well-prepared and familiar with the requirements. Below is a step-by-step guide to help you through the process.

1. Check Your Finances

Before applying for a mortgage, assess your financial situation. As we previously discussed, lenders will closely examine your income, savings, and existing debts to ensure you can handle the mortgage payments.

Make sure your debt-to-income ratio is within acceptable limits (typically under 35%) and that your credit score is strong enough to qualify for a loan. For non-residents, providing a credit report from your home country may be necessary.

2. Save for a Down Payment (Eigenkapital) 

In Germany, the down payment, or Eigenkapital, is an important factor in securing a mortgage. Generally, lenders expect foreigners to provide a larger down payment, usually around 20%-30% of the property value.

This ensures the lender that you are financially committed to the purchase and reduces their risk. Start saving early to make sure you meet this requirement.

3. Gather Necessary Documentation 

To apply for a German mortgage, you will need to gather various documents, such as proof of income (e.g., payslips, tax returns), proof of identity (e.g., passport), and possibly a credit report from your home country. Self-employed individuals may need to provide additional proof that they can make repayments, such as 2 most recent tax returns and 2 most recent tax assessments (called Steuerbescheid) from the German tax office. 

4. Research and Compare Lenders

Not all German lenders offer the same mortgage products, and the terms can vary significantly. Take the time to research and compare different banks and mortgage brokers. Look for lenders with experience in dealing with foreign buyers, as they might offer more favorable terms or flexible conditions.

5. Get a Pre-Approval (Finanzierungszusage)

Once you’ve found a lender, it’s a good idea to get a pre-approval, or a Finanzierungszusage. This is a statement from the bank confirming that you are eligible for a mortgage and specifying how much they are willing to lend you. Having this pre-approval in hand can speed up the process when you find a property you want to buy, as it shows sellers that you are a serious buyer.

6. Choose Your Property

Now that you have your finances and pre-approval sorted, you can start searching for your ideal property. Whether it’s a wohnung or a haus, make sure to consider not only the price but also additional costs such as property taxes, notary fees, and legal costs when determining what you can afford.

7. Submit a Mortgage Application 

After choosing the property, you’ll need to submit a formal mortgage application to the lender. This application will include all the necessary documents, such as your pre-approval, proof of income, and property details. The lender will review your application and conduct a final assessment of your eligibility.

8. Wait for the Loan Approval

After submitting your application, the lender will review all your information and determine whether or not to approve your mortgage. This process can take anywhere from a few days to several weeks. During this time, the bank will assess the property value, your financial situation, and other relevant factors.

9. Seal the Deal 

Once your loan is approved, you can move forward with completing the purchase. You’ll need to finalize the sale contract with the seller and coordinate with a notary for the legal transfer of ownership. After that, you can start making your mortgage payments as agreed in your loan terms.

Types of Mortgages You Can Get as a Foreigner in Germany

Let’s take a look at the kinds of mortgages expats in Germany can acquire:

Annuity Mortgage (Annuitätendarlehen)

The annuity mortgage is the most common type of mortgage in Germany. With this mortgage, you make regular monthly payments consisting of both interest and principal. At the beginning of the loan term, the interest portion is higher, and the principal portion is lower, but as time goes on, you pay off more of the principal.

The fixed nature of the payments provides stability, as you’ll know exactly how much you need to pay each month. This is a popular choice for expats who want long-term financial security.

Interest-Only Mortgage (Tilgungsaussetzungsdarlehen)

An interest-only mortgage allows you to pay only the interest on the loan for an agreed period, typically 5-10 years. During this period, you do not repay any of the principal, meaning your monthly payments are lower than with an annuity mortgage.

However, you will need to repay the principal in full at the end of the interest-only period. This type of mortgage can be risky, as it depends on your ability to make a large lump sum payment later, or refinance the loan.

Variable Rate Mortgage (Variabler Zinssatz)

With a variable rate mortgage, the interest rate fluctuates based on changes in the European Central Bank’s base rate or other market conditions. While the initial interest rate might be lower than fixed-rate options, it can increase over time, making your monthly payments unpredictable. If you can handle fluctuations in your finances, go for it.

Forward Loan (Forward-Darlehen)

A forward loan is a good option if you’re concerned about rising interest rates in the future. It allows you to lock in current interest rates for a mortgage that will begin at a later date, usually when your current fixed-rate period ends. This type of loan is ideal for expats who already have a property and want to refinance their existing mortgage when the initial fixed-rate period expires.

Building Society Loan (Bausparvertrag)

This is a unique financing option in Germany that combines saving and borrowing. First, you enter into a contract with a building society (Bausparkasse) and save a set amount over the years. Once you’ve saved enough, you’re eligible to borrow the remaining amount as a mortgage at a fixed interest rate. 

Essentially, you’re committing to a savings plan that will then give you access to a low-interest loan for your mortgage later on. This arrangement is popular with those who want long-term stability and the security of knowing what their future interest rates will be

FAQ

Can foreigners get a mortgage in Germany?

Yes, foreigners can get a mortgage in Germany. While the process may be more complex for non-residents, many banks and lenders are willing to offer mortgages to foreigners. However, non-residents might face stricter requirements, such as a larger down payment (typically 30-40%) and more detailed financial documentation.

Do I need a German bank account?

Yes, having a German bank account is required when applying for a mortgage in Germany. This account will be used to facilitate your mortgage payments and other property-related transactions. If you’re a foreigner or non-resident, opening a German bank account can also help demonstrate ties to the country.

Is it mandatory to use a notary in property transactions?

Yes, it is mandatory to use a notary (Notar) in property transactions in Germany. The notary ensures that the transaction is legally binding and handles the paperwork necessary for the transfer of ownership. Both the buyer and seller must sign the purchase contract in front of the notary, who then registers the property transfer with the local land registry (Grundbuch)

Conclusion: Take the Next Step with Kredium

Getting a mortgage in Germany doesn’t have to be a stressful experience. If you enlist the help of Kredium, an all-in-one real estate and mortgage broker, the biggest hurdle you’ll encounter is pronouncing the German real estate jargon. Our experts will guide you through every step, and the best part is the clients pay nicht - the cost of our services is covered by the lenders and the mortgage brokers within the network.

You can use our Foreign National Mortgage Calculator to determine your monthly payments and find the best mortgage options for your budget. Ready to take the next step? Let Kredium make your journey toward owning property abroad easier and stress-free.

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