How To Get A German Mortgage

20 December 2016

A step-by-step guide for foreign investors looking to obtain German mortgage finance

Thanks to the combination of a buoyant economy and continuing population growth, there’s a strong case for Berlin as a location for residential property investment. What’s more, when compared to other global property hotspots (Prime central London or New York, for example), the German capital also has affordability firmly in its favour.

For investors expecting to fund their acquisition through mortgage finance, there’s further good news: this is a foreigner-friendly market - making accessibility an important item to add to the list of factors in favour of Berlin.

So broadly, what can non-residents expect as they seek to obtain a German mortgage? As you would expect in any mature and well-regulated property market, there’s a process of due diligence to go through. It’s thorough (always a strong indicator of a stable market); yet it’s also refreshingly logical and transparent. In short: in the right hands, expect a relatively straightforward process.

Here’s our guide explaining the typical steps towards securing property finance from a German lender:

Step 1: Explore your mortgage options at an early stage

The formal application for a mortgage is made after you have agreed in principle on the purchase of a specific property. However, it’s important to thoroughly explore the German mortgage market at an early stage - i.e. when you first start to consider individual properties. This can benefit you in the following ways:

  • Getting a broad picture of borrowing limits. In Germany, these limits are set with reference to the ‘mortgage lending value’ (MLV) of a property - i.e. the value of that property conservatively assessed and determined by prudent assessment of its future marketability. German lenders are cautious - and their valuations of properties tend to be lower than the market value. Depending on the lender, your income and the value of the property, it may be possible to secure a loan for up to 70% of the MLV on a property.
  • Fixed or variable interest rates? Both repayment types are possible - but as in any market, rates differ from lender to lender.
  • Providing proof of income. If you are clear on precisely what documents your lender will require sight of at an early stage, you can start getting your paperwork in order to avoid delays later on. This is especially relevant to self-employed investors where proof of income may be less than clear-cut.

Step 2: Choose your lender

You could scour the market yourself, but with specialist mortgages available to foreign investors, there’s a danger of missing out on the best deals. A broker can make the process quicker and easier, while helping you identify the most appropriate mortgage arrangements for your needs. For this we would recommend our preferred partner Liquid Expat, who specialise in providing help to overseas investors and have specific expertise in the German market.

Step 3: Submit supporting documentation to your broker

Your broker will steer you on what to submit and when, according to the specific requirements of the proposed lender. Standard ID details usually consist of a passport and two-year address history.

On the personal financial side, this is likely to consist of a self-disclosure (Selbstauskunft) questionnaire, and proof of earnings. For self-employed persons, typical requirements include two years’ of balance sheets in addition to the previous year’s tax return. You will also need to provide proof (in the form of bank statements) that you have equity to cover the loan deposit.

You will also be asked to provide details of the proposed property such as size, location and estimated time to completion.

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Step 4: Obtain a Schufa report

Schufa is Germany’s credit and loan data repository. A Schufa report (a score-based credit assessment) is required by lenders as part of the loan approval process. As an overseas buyer however, you will almost certainly will not have a German credit record. As such, your broker should be well versed in what specific lenders require sight of to show proof of your creditworthiness (usually a report from your home country’s credit reporting agency).

If you are based in the UAE where there are no credit reporting agencies, a loan statement and bank records may be filed in lieu of a report; again, your broker will point you in the right direction for this.

Step 5: Instruct a notary

Having located your desired investment, you are almost ready to start the purchase process. However, all German property purchases must be handled by a notary, an unbiased individual who will oversee all legal formalities on your behalf.

IP Global’s client services team can introduce you to a recommended Berlin-based notary. German regulations require the buyer to be there in person to witness the exchange of contracts - and although coming to Berlin in person for this is an option, you can also delegate it to a third party through a Power of Attorney (POA). Again, IP Global can recommend a trusted legal representative to appear on your behalf.

Your notary will send you a POA document. You then take this document, along with your mortgage application and other supporting documentation to your local German consulate or embassy to have the signatures notarised (witnessed and verified). You send the original POA to your notary via recorded post.

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Step 6: Return your mortgage application to your mortgage broker

This happens at the same time or shortly after you return your POA to your notary. Having received it, the broker will check the application and supporting documents and forward it to the lender.

Thereafter, the broker will check that the application has been received safely and that investigations (such as property surveys and credit checks) are progressing appropriately.

Step 7: Lender investigations

This process usually takes a week or two to complete, and occurs at broadly the same time that your notary conducts due diligence investigations on your behalf concerning the property contract.

Your broker will have already checked carefully to ensure that the investment, the amount of capital required and your personal financial situation (including the proof you need to back it up) all meet the criteria of that particular lender. If you are in the right hands, these investigations are usually a formality.

Step 8: Your mortgage offer arrives

You now have a firm offer of funds in place from the lender. At about the same time, your notary should come back to you having completed all due diligence investigations. In other words, you have everything you need to reach a legally binding final agreement on the purchase of your desired investment.

Ready to find out more?

In several key ways, the German mortgage market mirrors the German property market as a whole: robust, stable, and well-suited to overseas investors.

You can find out more about the process of obtaining a German mortgage by speaking to our preferred mortgage finance partner Liquid Expat.

For help with identifying prime Berlin property investment opportunities, an expert analyst’s view of the market and for further information on the work of our client services team, simply contact us today.

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Ian Sigmund

Written by Ian Sigmund

Ian is responsible for the sourcing and management of all IP Global investments in Germany with emphasis on the Berlin market. His previous exposure to International Financial Markets at the Royal Bank of Scotland Group and China Merchants Fund have provided him with the critical quantitative and analytical skills to identify key strategic Investment locations in the German real estate market.

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