Buying property in Germany

Once people have settled down in Germany, some may wish to buy a house or apartment, or even build a new house from scratch. This page explains the process, and what should be considered before buying property. For information about renting property, see the guide to finding housing in Germany.

German real estate market

Unlike in some other countries, the majority of Germans (around 57%) rent their home instead of buying it. This has many reasons - from the significant legal protections and favourable conditions which tenants enjoy, to the high cost of buying housing, to the market making it very difficult (and/or expensive) to buy and sell houses within a short timeframe. Unlike in some other countries, owning your own home is not a necessary step to be considered an “adult” - many Germans rent well into old age, and are usually not financially worse off than those who own their own homes. Germans tend to buy, at most, one or two homes during their lifetimes, and often sell them only when they die.

As explained in more detail below, buying your own home in Germany generally only makes sense once you’ve settled down and are very confident that you will still be living in that house/apartment in at least five (ideally ten) years’ time. If you’re forced to move out or sell before that (e.g. if you have a child and need more space, or you change jobs and move to a different city) you will probably end up taking a severe financial hit - and renting out a house that you no longer need to live in is, in most cases, not a particularly attractive option either, as being a landlord in Germany involves a lot of work and many responsibilities. Particularly immigrants probably should almost certainly start off renting when they first arrive, and only consider buying a house once they have settled down in Germany.

Purchase

The large real estate portals are ImmobilienScout24, Immonet, and Immowelt. Most sellers list properties for sale on these platforms; only putting up a “for sale” sign on the property is fairly rare.

If you see a property you’re interested in, then you need to contact the seller (or the estate agent representing the seller), exchange contact details, get additional information about the property (some sellers only give out certain information - e.g. the exact address or the floor plan - to people who specifically express an interest in the property), and arrange a viewing.

Especially around the larger cities, demand far exceeds supply, so (similarly to apartments and houses for rent) there are often dozens of enquiries within the first day after a listing goes live. This means that potential buyers often need to be very fast - it’s not uncommon for an interested buyer to visit a property the same or next day, and then come to an agreement with the seller a day or two later.

Sellers handle significant numbers of potential buyers in various ways. Some take a “first come, first served” approach, where the first interested buyer gets the first chance to visit the property and reach an agreement. Others let a number of buyers visit the property, ask all interested buyers to submit a sealed bid, and then accepts the highest bid.

Gutachter

If a buyer is seriously interested in a property, then they often hire a surveyor (Gutachter), who inspects the property on their behalf. The surveyor’s job is to inform the buyer of any potential issues with the property, in order to (for example) help them to assess any renovation costs.

Purchase costs

Next to the purchase price, a buyer has to budget for:

  • The real estate agent. In Germany, the estate agent is paid a fixed percentage of the purchase price; this varies by state, but is around 5-7%. A few sellers decide not to use an estate agent, but this is comparatively rare (such listings are usually advertised as “ohne Makler”).
  • Purchase taxes (“Grunderwerbsteuer”). These also vary by state, but are usually between 3.5% and 6.5%.
  • By law, the purchase contract must be concluded through a notary. The notary acts as a mediator between the buyer and seller, ensures that the contract does not violate any laws or unduly favours either party, and that both parties understand the contract they are signing. The notary can also act as an escrow service. The notary costs around 1-2% of the purchase price, and this cost is paid by the buyer.

Therefore, in total, buyers should budget for around 9-15% purchase costs on top of the purchase price.

Additionally, most buyers will want to (or have to) renovate the house/apartment after buying it. This can range from repainting the walls, to completely gutting the entire house, leaving only the exterior walls standing, and the cost of these renovations should also be factored into the financial planning.

Purchase contract

Either the buyer or seller can propose a purchase contract. The notary will go through it with both parties and is there to explain any clause to either party, and, when both parties agree, they will sign the contract, and their signatures will be attested by the notary.

Mortgage

The “standard” home mortgage assumes that the buyer can afford a down payment of between 10 and 20% of the total cost of the purchase (including all the points listed above). Banks may be willing to give out a mortgage with a lower down payment, but they tend to jack up the interest rates, and no-down-payment mortgages are very rare.

The “standard” mortgage is a fixed-term fixed-interest-rate mortgage, usually over a period of between 5 and 25 years (15 to 20 is typical). The longer the fixed interest period is, the higher the interest rate. Interest rates vary between banks, so definitely shop around. For example, it goes up if the bank thinks the property is overpriced, they are worried that you might not be able to make your payments, or if you can put down less than about 10% of the total costs.

The monthly rates are fixed throughout the lifetime of the mortgage, and are usually set so that the initial annual repayment rate is 2%. Let’s say you take out a 300 k€ mortgage at 1% p.a. interest. 2% of the principal is 6 k€ a year, or 500 € / month. The interest payments for the first year are around 3 k€, or 250 € a month. Therefore, your monthly rate is set at 750 € / month. This monthly rate stays constant until the end of the mortgage - so at the beginning, a third of the 750 € rate is going to interest, but this proportion decreases as you start paying down the principal. Note that the math is somewhat simplified, but it hopefully explains the principle. You can, of course, get a mortgage with a higher repayment rate (or a lower one, but usually at a higher interest rate - plus, you’d be paying back your mortgage for forty years or more at that point).

In addition, most mortgages allow you to repay more than your normal monthly payments, once a year, should you wish to do so. This is called Sondertilgung, and allows you to pay back your mortgage faster than scheduled, should you have more money left over at the end of the year. Note, however, that if you pay your mortgage back too soon (earlier than ten years in most cases), then the bank will charge you for the interest they would otherwise have received (see below).

Therefore, the two most important factors in getting a mortgage approved are:

  1. Does the bank think think the specific house you’re buying is worth the money? I.e., should you default, can they expect to recoup their losses by repossessing and selling it?
  2. Does the bank think you can afford the monthly payments?

You can’t do anything about (1) at this stage, so concentrate on (2). (2) depends on your income and your spending. The banks can roughly estimate what you need to live (they will ask you about your income, and then quiz you on your spending habits - e.g. how often do you eat out, do you own a car, what kind of holidays you take, etc), but this is something that you should know even better, if only for your own peace of mind. I would therefore strongly recommend that you take a weekend and go over the last two years or so of bank statements, analyse what you spend each month (and on what), to get an honest estimate of how much money would be left over for the mortgage. You can then use this value to calculate the maximum mortgage you can afford. You can use a calculator like this one to play with some numbers.

What I’ve explained above is the “standard” German mortgage. There may also be other options available to you; talk to your bank about these. For instance, you can get special loans from the German federal government to finance renovation work which increases the energy efficiency of your house. I would talk to your bank (i.e. the one you have an account with), a few other banks, as well as specialised mortgage brokers (e.g. Interhyp), who negotiate with a huge range of banks on your behalf.

Your German credit score (e.g. from Schufa) only affects your mortgage a little. If your score is particularly bad, the bank may refuse to lend to you (or increase the interest rate), but anyone with at least a decent credit score will get the same terms. “Building credit” is not a thing in Germany, and your US credit score doesn’t affect a German mortgage at all. Rather, the bank will look at how stable your income is (e.g. how long have you been working there, do you have an unlimited contract, etc), but that’s about it.

Generally speaking, banks will not give a mortgage to someone who doesn’t have at least permanent residency in Germany.

Demolition and building

Many older buildings are sold with the intention that they be demolished by the buyer. If you’re looking to buy such a property, make sure to take the demolition costs into account - particularly with older buildings which may include hazardous (e.g. asbestos) or difficult-to-dispose-of (e.g. oil tanks) materials, these costs can be substantial.

If you’re then looking to build a new house, you have a range of options:

  • A Fertighaus (pre-fab), which is assembled from pre-manufactured components. These are usually the cheapest option, and, depending on the manufacturer, can be of good quality, but you have very limited options for customisation. They can be built very quickly.
  • A Massivhaus, which is a house built completely on-site. This gives much more room for customisation (you can start with a template and then modify it, or hire an architect to design a house completely from scratch), but is also more expensive, and the build process is much longer. Traditionally these house are made of brick, stone, and concrete, but in recent years wooden houses become more popular for environmental reasons (although they still make up a pretty niche market).

Real estate agents

When buying a house/apartment in Germany, the real estate agent is chosen by the seller, works for them and represents their interests (i.e. creates the listing, advertises the property, organises visits by interested buyers, etc). However, their fee is paid by the the buyer (yes, we all know the system sucks). Buyers do not have a say in which estate agent negotiates a sale. Therefore, when dealing with real estate agents as a buyer, always remember that they do not represent your interests, and treat them accordingly.

It’s theoretically possible for a buyer to hire an estate agent themselves to look for properties on their behalf. However, this is comparatively rare, as not only would the buyer then have to pay two real estate agents, but their own real estate agent can’t do anything that the buyer couldn’t do themselves - all they will do is look through the same property listing websites as anyone else.

Taxes and financial aid

Home buyers pay a one-off tax when they purchase a property (see above), as well as an annual land tax (see below).

There are no tax incentives to buying a home, and there are also no government schemes to help people buy their first home (or any home), for example. There are also no tax breaks for people who own their own home (unlike in certain other countries, where homeowners can, for example, deduct their home mortgage interest from their taxes).

Having said that, the state-run KFW bank does offer grants and low-interest loans to people building particularly low-energy homes, or performing certain renovation work in their home (making it more energy-efficient, making it suitable to live in old age, etc).

Ownership

Owning a house/apartment (beyond just buying it) in Germany is more expensive than many immigrants realise.

Grundsteuer

Homeowners have to pay land tax (Grundsteuer). The rate is based on historical land vales adjusted by a factor (determined by the local government). There is no way to determine from the “outside” how high land tax would be for a particular property - you’ll have to ask the seller and/or real estate agent. Also, all German states are currently overhauling their land tax system (the current system was declared unconstitutional by the German courts).

Maintenance

Many components in a house require regular maintenance. Therefore, a homeowner needs to account for these costs when planning their finances.

Concerning maintenance: The heating system is the most important maintenance task (~150 € per year), but windows should also be checked every two years, all the pipes inspected every five, and so on. These inspections are there to catch small problems before they become big problems. Homeowners can choose not do them, but at the risk of only finding out about corroding pipes when they flood their living room.

Upkeep

Nearly every part of a house (with the possible exception of the exterior walls) has a limited lifespan, and at the end of that lifespan, it will need to be either replaced or seriously overhauled. Therefore, homeowners need to put money aside every month in order to have sufficient savings to pay for these things down the road. It doesn’t have to be in a savings account, it can be in any reasonably liquid investment (e.g. index fund), but the money needs to be accessible at relatively short notice.

A few examples, keeping in mind that these are very rough estimates:

  • Paint / wallpaper on inner walls lasts about 15 years. Repainting / re-wallpapering an entire house costs about 15k. Therefore, from the moment you move in, you should be putting aside 85 € / month in order to have enough savings in fifteen years to be able to pay for this work, assuming you started saving the moment you moved in
  • Floors (depending on the material) last about twenty years. Costs vary enormously according to material, but let’s use some run-of-the-mill Parkett, which costs (including labour and materials) 40 € / m². For a 140 m² house, that’s 5.5k, or about 25 € / month.
  • A heating boiler lasts about fifteen years, and costs about 10k to replace, or 50 € / month.
  • Windows last about twenty years, and a new window costs about 800 €. Let’s say the house has twenty windows, that’s 16k, or 70 € / month.
  • A kitchen or bathroom lasts about twenty-five years. A new kitchen is about 15k, a new bathroom about 25k, and assuming the house has two bathrooms, that’s 65k, or 220 € / month.

Now, some of this work can be postponed if necessary - for example, if you can live with splotchy paint and peeling wallpaper, then you can put off renovating the interior walls for a bit. However, other kinds of work (e.g. replacing exterior grout) can be postponed, but the cost increases the longer you leave it (as rainwater starts infiltrating your outer walls); other kinds of work (e.g. replacing a broken kitchen appliance or a broken heating boiler, or fixing a leaking roof) needs to be performed immediately.

As an order of magnitude, upkeep costs are about 1.5-2% of the value of the house/apartment (excluding the land it sits on). Therefore, for a house costing 300k, upkeep costs around 375-500 € / month.

Apartments

Hausgeld

The Hausgeld is the monthly payment by all apartment owners to the apartment building manager (Verwalter), and covers all the common costs, including maintenance of common areas, garbage disposal, etc. It also covers any utility costs which are invoiced jointly (e.g. if the apartment building has a central heating system).

Eigentümergemeinschaft

All the owners of the apartments in one building (and sometimes several buildings) form an Eigentümergemeinschaft to jointly manage the building as a whole. This group meets at least once a year to take decisions about matters which concern all of them - for example, whether to hire a gardener to maintain the common grounds around the building, whether to install a new central locking system, what maintenance work to do, whether to give permission to one owner to install awnings, etc.

Selling

Vorfälligkeitsentschädigung

Renting out

Being a landlord in Germany, particularly a small-time landlord, is a lot of work and not insignificantly amount of risk. Among small-time landlords, most barely make a profit or break even, and a significant percentage make a loss. Additionally, since tenants have such extensive rights, landlords not only have to be extremely careful about whom they rent to, but also have to be very reactive when it comes to fixing problems with the property, or else the tenant can unilaterally reduce the rent until the problem is fixed.

While entire books have been written on the subject, the point we’re trying to get across here: if you’re considering buying a home either to rent it out, or buying a home for yourself and thinking you’ll just rent it out if you move, then make sure to do your research very carefully, and decide for yourself if you’re willing to put in the work which is required to be a landlord, and whether you’re ok with taking the financial risks involved.

Buying vs renting

The decision whether to buy or rent your home is a very complex one, and often goes way beyond the pure financial aspects. It’s important to understand that, at the very macro level, in Germany you are likely to spend about the same on non-recoverable (money which doesn’t go towards owning an asset) monthly costs on a given property, irrespective of whether you own or rent it. Therefore, to own a house/apartment you generally pay more every month, and that extra money goes towards paying off the mortgage - but, from a purely financial sense, that money could just as well go towards owning any other asset which hopefully increases in value in the future.

As a tenant, your “non-recoverable” costs are:

  • Rent
  • Utility payments (Nebenkosten)

As a homeowner, your non-recoverable costs are:

  • Mortgage interest
  • Utility payments
  • Upkeep (remember that, by law, landlords may not pass upkeep costs on to their tenants)
  • Lost appreciation of the down payment (if you need to put down, say, 100k to buy a house, then, if you had been renting, you could have invested that money somewhere else and gotten several hundred Euros a month in returns)

While the numbers are different for any given property, broadly speaking they are comparable.

The high closing costs and penalties for selling early (see above) means that selling a home soon (within the first five years, possibly as long as ten) after you bought it means that renting during that period is usually far more financially attractive. On the other hand, if you buy and live in a home for more than ten years, the likely increase in value of the home, as well as the fact that your mortgage payments are absolutely fixed while rental payments increase slowly year-on-year, means you’ll likely come out ahead, financially speaking.

The other big difference between owning and renting concerns predictability. As a tenant your monthly housing costs are extremely predictable - once you’ve paid your rent and your Nebenkosten, you’re essentially done. As a homeowner it’s a completely different story, as due to the random nature of wear and tear on a property, you will have calm years, and then years where you have to pay several five-figure bills (because the heating boiler died, or you discovered a leaking pipe and had to replace several walls, or because the kitchen was finally getting so old it needed to be replaced, etc). This means that homeowners need to not only have a much larger financial “cushion” on which to fall back on, but also need to do more long-term financial planning to ensure they have enough financial liquidity should they need it.

Being a homeowner is also generally more work, as you have to fix problems which arise yourself, as opposed to just foisting them off onto your landlord. On the other hand, being a homeowner you can decide when and how to fix problems, and aren’t depending on the good will of your landlord (who may sometimes choose an option you’re not too keen on, or to do the absolute minimum required).