Financing a property

German loan agreement and housing loans

To buy a property you will probably need funding. Financing can be a problem if you don’t fit certain demands, even though for foreigners owning property in Germany there are no regulations.

Evidence of a good and stable banking history is what the German banking system needs. In Germany a loan agreement covers commonly 60-70% of the property value and is usually paid over a locked term of 10 years. You might have to refinance with another loan agreement at new market rates, after the initial loan agreement runs out.

Schufa is a credit and loan data repository. The bank will contact Schufa and request a copy of the loan agreement applicant’s Bonitätsauskunft, when an application for a loan agreement is made in Germany. In this data are details of a consumer’s credit rating.

A Schufa report plays an important part in determining if a loan agreement application is rejected or not. It is not the only point that affects the bank’s decision. As a foreigner you might not have any file at the Schufa report. If this is the case, you need to show evidence of your credit history at home to the bank that you are applying with.

Types of property loans

Mortgage loan (Hypothek):

The Hypothek or Hypothekendarlehen is the right to dispose of property you give to a bank in form of real estate, for which you receive a loan in return (i.e. the bank can hold the real estate if you fail on your repayments). A Hypothek normally covers around 60-70% of the real estate’s market value. You have to finance the rest by yourself. There are three types of Hypothek in Germany, they offer different conditions for repayment.

Fixed-rate loan (Annuitätendarlehen):

You repay your debt in annuities (Annuitäten) with this type of loan. That means you pay a part once per year. A fee consists of one part interest and one part repayment. The fees remain the same during the term (fixed-rate).  The remaining debt has to be fully repaid at the end of the term.

Building society loan (Bausparvertrag):

You first save money in your account (Bausparkasse) with a building society loan, then you repaid your savings and given a loan (the remaining money you need for building a house or buying real estate). When signing in for a building society loan contract, it must specify interest rates for your savings and for your loan. As well as the amount you want to borrow later and the amount of money you want to save. Beforehand you also have to agree on the instalment amount and the loan period. This type of loan is subsidized by the German state.

Endfälliges Darlehen (also Zinszahlungsdarlehen):

Endfällig means “due at the end”, Zinszahlung means “payment of interest”. You only have to pay the interest during the term of this loan, what makes each instalment appear very low. At the end you have to repay your full debt to the bank.

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