Like many other expats in Germany , your goal is to buy Real Estate in Germany. Theoretically it should be possible to buy this real estate in Germany, but like everything else in Germany you need to consider many factors to buy your dream house in Germany.
How to Buy Real Estate in Germany
How much does Real Estate in Germany cost?
As a rule of thumb, your maximum monthly payment on a loan should not exceed 35% of your monthly net household income.
However Interest rates in Germany are still higher than they have been in the last decade. But the low interest rate in the past caused the housing market to soar.
That’s why Houses in Germany are more expensive than they have ever been. On top of that the lack of new constructions is making the prices for real estate in Germany even greater. This is why more than half of the population in Germany rents a house. But you are thinking of buying a house in Germany and want to know whether you can afford real estate in Germany or not?
Renting vs Buying Real Estate in Germany
When it comes to housing expenses it’s important to understand that there is a huge difference between buying and renting. And as you’re about to see, the costs are going to be substantially different depending on which route you decide to go.
For example your rent is the most you’ll ever pay each month and your mortgage is the least you’ll ever pay. As a renter you pay your kaltmiete or the cold rent at a fixed cost. The nebenkosten or the additional costs are somewhat variable but you generally pay them based on your usage.
There aren’t going to be any large surprise bills or urgent repairs that can drain your bank account. Whereas when you buy a house, well you have your mortgage , if anything gets broken you have to get that fixed, then there are insurance costs, gardening fees and so much more which I will be discussing in detail.
How Much Money do you need to Buy a House in Germany?
Buying or building a house in Germany is a decision that many of us would probably only make once in our lives, and that presents us with major financial challenges. That’s why the first step on the way to our dream property is the question of the financial leeway . In order to determine this, we have to answer three questions:
- What monthly burden can I cope with?
- How high are my financing needs?
- What loan rate results from my financial flexibility?
How much house can you afford in Germany?
As I mentioned in the beginning, most people use a rule of thumb, having a maximum loan of less than 35% of their monthly net income.
To calculate this just take your net monthly income multiply that by 0.35 and that’s how much your payment should be per month.
For a 3500 euro net salary it is enough to buy an apartment in the €200000 range with twenty percent down at a 3.5% interest rate. Of course if you’re disappointed that a €65K salary is only enough to afford a €200K home you’re not alone.
If you want something to blame it’s the extremely low interest rates in the last ten years ,the German bureaucracy and the horrendously low amount of real estate being built in Germany.
Just consider that when mortgage rates were at sub one percent the typical €65K income was enough to buy a home in the €250K range but now with costs having increased that final number is significantly lower. And this is the absolute maximum amount and you should be looking for something under this range.
That’s why under the 35% rule you would need to be making 120K a year to a €500K house in Stuttgart or €250K per year to purchase a €1 Million house in Munich with monthly loan installments of 2000€ and 4000€ respectively .
With this rule The monthly loan installment should always be lower than your monthly financial resilience.
Related Guide: How Much House Can you Afford in Germany?
Parameters to calculate your ability to Buy a House in Germany
A monthly bill of expenses is a good starting point for determining the possible monthly loan installment .
It is best to use tables to record all monthly household costs, special expenses and living expenses. The difference now shows you your individual financial resilience .
Potential borrowers who fully and continuously record their expenses do not have to expect any unpleasant surprises with their finances. A sample calculation for a family of three might look like this:
Difference between Renting and Buying Real Estate in Germany
House owners do save on the rent, but still have to bear heating, electricity, water, sewage and waste costs.
That is why some people use the two euro rule which says you’ll spend €2 for every Square meter of livable space every single year for homes or apartments in Germany.
You should also put money aside for maintenance, repairs and renovations on the house that will sooner or later require a lot of money.
If the planned financial reserve is not used up every month, this amount can be used as a reserve for future expenses.
Basis of how much house you can afford in Germany
The monthly bill of expenses is the basis to determine how much house you can afford in Germany. Because without looking at the household finances, you will not have an overview of your liquidity. In particular, you need to know what expenses you will incur. However, a household bill alone is not enough. You also have to consider the key factors involved in financing a house as well.
It will definitely benefit you to have an honest and realistic check. The more precisely you estimate your income and expenses, the less likely it is that the financing calculation will fail.
To be on the safe side, please also include an Emergency Fund so that unplanned costs do not lead to future problems with your loan repayment. Have you considered what you would do if you or your partner lost their job? How many months would you be able to survive without a job?
I want you to include this variable in your calculations because recently someone I know went into kurzarbeit and so did their spouse and they are now in huge financial problems because they are not able to pay the installments on their loans.
So you have figured out your financial resilience? Next we will discuss
How much money do you need to buy a House in Germany
Unless you have been saving for many years or hit the jackpot it is unlikely that you would be buying a house in Germany with your own resources.
That’s why you are going to need real estate financing. When you take out a loan you can pay monthly installments and those include an interest and repayment component.
It is important to know that the more equity you bring in, the lower the monthly financing burden. As equity lowers the interest cost of your home loan. The type and price of the property also play a rule but for simplicity’s sake we are going to skip those factors.
Things banks consider while giving a Real Estate Loan in Germany
As someone who is interested in Buying a house in Germany, Real estate buyers can include:
Cash, Funds in bank accounts,Securities such as stocks or ETFs, Life insurance payouts and many others. But all of these depend on whether you want to get a loan on a property you want to build or buy.
Banks assume that around 20 to 30 percent equity is good for Real Estate financing in Germany. This is essential to how much house you can afford in Germany . Because the less real estate loan you need, the lower your repayment amount to the bank.
When buying a house without equity, borrowers have to have a credit rating that is beyond any doubt and must be able to service high monthly loan installments.
This type of real estate financing is therefore only an option in exceptional cases.
How much equity do you need to buy a House in Germany?
Coming back to equity, the percentage of funds you bring doesn’t just reduce your credit ratio.
Borrowers with high equity may also receive better conditions than other borrowers. A lot of savings can mean lower interest for your loan. The high proportion of equity would also give you a good credit rating.
Anyone who has already saved up their own funds is considered trustworthy and disciplined by banks. But Make sure that you keep you Emergency fund separate from the equity.
So you have calculated your Financial Resilience, you know how much equity you can bring in. What else do you need to know before you buy a house in Germany?
What are the costs of Buying Real Estate in Germany?
One of the biggest expenses you need to consider is the Nebenkosten or the closing costs of buying a house in germany.
Banks usually do not finance any additional purchase costs. You as the borrower must cover at least these costs from their own funds. Depending on the federal state in which the property is located, the closing costs are between around 10 and 15 percent of the purchase price.
These costs should not be underestimated, as they play a huge role in figuring out how much house you can afford in Germany.
These include
- Property transfer tax which is between 3.5 to 6.5%
- Notary costs of about 1%
- About 1% for Entry into the land register
- Broker costs of between 3 to 6%
*these costs vary depending on the German Federal State
Additional costs of buying Real Estate in Germany
You should know that these additional costs for buying a property in Germany are due for payment at the notary immediately after the purchase contract has been concluded.
The involvement of a notary is required by law to protect homebuyers from hasty and ill-considered purchase decisions. The notary fees cannot be negotiated arbitrarily. They depend on the property purchase price and have been uniformly regulated by the law.
That is why When planning your budget, be sure to also take into account the additional costs. If these costs are not included, the budget will lack money for the loan repayment or maintenance of the property in the short or long term.
Costs people forget when buying a House in Germany
There are other costs that you should consider too like:
Expenses for moving and new furniture if necessary, modernization or repair costs, trust me you will need to do some repairs when you buy you a house in Germany. It won’t be necessary but you will do them nevertheless.
Dont forget the ongoing additional costs weighing on your monthly budget. They include the annual property tax as well as insurance premiums for home insurance and natural hazard insurance.
Just keep in mind the things I have mentioned in this article are General guidelines and each property and financial situation needs to be assessed individually. But let’s say you don’t want to bring any of your own equity then you can read my guide on How to buy a house with Zero money.
Disclaimer: None of the content in this article is meant to be considered as legal, tax or investment advice, as I am not a financial expert or a lawyer and am only sharing my experience in Germany. The information is based on my own research and is only accurate at the time of posting this article but may not be accurate at the time you are reading it. Please check with multiple sources and make your own opinion based on that.