Having a stable economy and property prices, Germany is a good place to invest in – especially in real estate. Germany, having one of the most complex tax laws in the world, you’ll have a few transactional cost as well as taxes while buying and selling real estate.

Buying real estate

One off cost while buying will involve:

• Land Transfer Tax
• Broker’s Commission (if involved)
• Notary and registration charges

Property transfer tax (Grunderwerbsteuer)

While buying a property in Germany, you’ll be asked to pay a one-off land transfer tax (German: Grunderwerbsteuer). The tax is calculated based on the purchase price of the property – excluding any inventory which was part of the deal and has been mentioned with a pricetag in the purchase agreement. The tax rate ranges from 3.5% to 6.5% of the purchase price – depending on the state the property is.

In most cases, banks will not finance this amount and needs to be brought in as part of the downpayment.

Broker’s commission

If you are using a broker to facilitate the purchase, he’ll be charging you anywhere between % (for new construction properties) to 7.14% of the property value. In most cases we see 3.57% being paid; i.e. 3% + VAT. The cost of the broker needs to be split (in most cases) evenly by buyer and the seller – hence whatever you are paying, the seller is paying as well.

Notary and registration charges

Notary and registration charges amount to 1.5-2% of the purchase price – depending how much loan you take. Notary charges are equal at all notaries based on law.

Selling real estate

Apart from the brokers’ commission, as mentioned above, you may be subject to capital gain taxes:

Capital gains tax

German term is Spekulationssteuer and will be based on your current tax bracket. Here’s a huge – money saving distinction!

Own use: if you used the property for your own the last two years prior to selling, there will not be any capital gain taxes levied.

Investment: if you bought the property and rented it out, you’ll need to hold the property for 10years to NOT be levied with the capital gain taxes.

Can I save taxes in Germany
by buying a property?

You can save taxes if you buy real estate in Germany. I am not a tax consultant (and don’t want to become one either), so in case of a doubt: check in with a professional tax consultant if you’re basing your purchase / sale on this article 😉 – he’ll be able to guide you more specifically and according to your aligned strategy.

Property Tax (Grundsteuer)

Property tax, which is paid on a quarterly basis, is a tax on the value of real estate. The tax rate is different from state to state and will be revised in 2025.

Own use: no deduction possible

Rented: It will increase your taxable income and reduce it at the same time making the property tax a +- 0 game. You pass on the cost to the tenant as part of the ancillary cost and pay the exact same amount to the Govt.

Interest of the home loan

If you take a home loan to finance your property, the interest paid can be deducted from your taxable income whil efiling your taxes (art of the addendum V+V)

Depreciation (Abschreibung)

Depreciation is a tax deduction that will allow you to write off the cost of your property over a period of several years – typically 50 years, leading to a depreciation of 2% p.a. The 2% will be based on the building value (= property value PLUS land transfer tax PLUS broker’s commission PLUS parts of the notary and registration fee MINUS plot value). There are exceptions: e.g. new built properties and properties with a reduced lifespan.

Video for landlords

Here’s a link to a video explaining how taxes for landlords can be calculated:

The new German Home Ownership Programme is the right step towards having and promoting the building and buying of climate-friendly buildings in Germany. The introduction of the New KfW Subsidies for Families Programme this June will likely encourage people to do their bit towards leaving a better and healthier world for the coming generations.

Moving on to the news in question, with the new “Home Ownership for Families” (programme number 300), the German Government, as discussed earlier, is keen to extend its support to families to purchase newly built properties or build new homes for their use. 

The low-interest-funded loan programme is planned to make it easier for families with medium incomes to fund a newly built home for personal use. A precondition for the subsidy is that the new construction should be predominantly climate-friendly. 

KfW combines family promotion with climate protection necessities.

At a time when the rates of construction interest are ballooning, construction expenses jumping, and the cost of land is heading north, funding a new building is a BIG issue. This is particularly a fact for families. One major reason could be that high living expenses frequently happen together with fewer number of job opportunities for either one or both parents. 

The magnitude for systematic repayment of a property loan isn’t too high, particularly for the families having low and medium earnings. Besides, the important subject of climate protection is also growingly becoming vital in the matters of building and accommodation. 

To attain the globally set climate goals, it’s required that buildings produce less CO2 emissions across their whole life cycle–right from construction and use to likely pulling down. Significantly, several people nowadays accord high value to living as climate-friendly as possible; for instance, by heating their homes using renewable sources of energies.

Q. Home Ownership for Families: Who Can Apply?

Those private individuals can apply for the programme,

• who construct a new climate-friendly residential structure or procure a climate-friendly new building for the first time within 12 months of acceptance of construction,
• who use the subsidised new building as proprietors (not less than half co-proprietorship) themselves for residential objects,
• who don’t have their own home at the time of application, and
• who have a minimum of one child up to the age of 18 residing in their home,
• who haven’t used the “Baukindergeld” subsidy scheme, which has been terminated.

Q. What are the Income restrictions for the funding?

As mentioned earlier, the new programme targets families with medium incomes. So, income limits have been fixed: The taxable yearly family income of the candidate and their spouse or partner, residing in the future family, may not exceed EUR 60,000 for one kid, plus EUR 10,000 for every extra kid.

As per the respective income tax assessment notices, the average values of the second and third calendar year prior to applying are critical. Hence, if you apply this year, the average value from the earnings of the years 2020 and 2021 will be made use of. For instance, a family with two kids may have a taxable income (in German: “zu versteuerndes Einkommen”) of EUR 70.000. This denotes a gross income (in German “Bruttoeinkommen”) of close to EUR 110.000 is the maximum you have permission to have. 

The added condition for new construction funding for families– as mentioned earlier–is climate friendliness.

As part of the “Climate-friendly new construction” promotional scheme, launched this year in March, KfW has come up with new requirements for advancing new buildings. These also are applicable to home proprietorship for families.

1. Compliance with limits involving greenhouse gas emissions across the building’s life cycle.
2. Attainment of the KfW Efficiency House Standard 40
3. Use of renewable energies for the purpose of heat generation. 

Although sustainability certification, in accordance with the Sustainable Building Quality Seal, isn’t an obligatory prerequisite for funding, it does boost the highest amount of loan.

Q. How much is the subsidy?

The “Home Ownership for Families” Programme is a subsidised loan programme with low, cut-down interest rates. The maximum loan amount is based on the figure of kids and the fact that the climate-friendly new building gets certification for sustainability.

Beginning in June, interest rates start at 0.01% for a 10-year loan with higher repayments AND a maximum of 1.26% for a 35-year loan with lower repayment.

A family with two kids constructs a climate-friendly new building without sustainability certification and may submit an application for a subsidy of not more than EUR 140,000.

A family with 5 or more kids that gets the certification for its climate-friendly new building may get a loan of not more than EUR 240,000.

In most cases, the new programme only takes care of one part of the funding. For the rest of the amount, you may use everyday construction financing products from your bank, or any different KfW programme, like the Home Ownership Programme, for example. 

Are you in Germany and an expat, who is keen to have a house of his own? Here, you will learn what things you shouldn’t do if you have plans to apply for a loan here. Perhaps, you already know what to do 

But do you know what you should strictly not do before you get your loan in Germany? Before you get your home loan in the overseas hotspot, don’t do these things as they may damage your creditworthiness and even prevent you from getting a loan for your dream house. And, won’t that be something painful and demoralizing? 

Now let’s find out what you shouldn’t do before you get a loan in Germany! 

So, here we go!   

1. Don’t Stack Up On Personal Loans: When you do this, it seriously decreases your credit score and makes you a not-too-good candidate in the eyes of the lending banks. Besides, EMIs are financial obligations for you, right? The more EMIs and personal loans you have, the lower your eligibility for a home loan will be. Banks monitor such things closely to know if you are a good candidate for a loan and if you can repay your loan. So, just don’t stack up on personal loans, if you really want to get a loan in Germany, right? 
2. Not Pay Your Invoices On Time: This again is a very important thing which of course you shouldn’t do. If the lending banks find out that you have a habit of not paying your invoices on time, you will become some sort of pariah for them, from the perspective of getting a loan in Germany. 
3. Don’t Have Any Debit Returns: A Direct Debit Return takes place when a donor’s bank dismisses direct debit) transaction. It may take place  If there are not sufficient funds available to pay the amount debited.
4. Change Your Job: This is another thing that you shouldn’t strictly do if you are in Germany and looking for a loan there. The probationary period is a yellow flag for banks. As high as 70-80% of German banks won’t give loans to you if you are in your probationary period. Check with your home loan consultant at the right time to change your job.  Why? Because when you change your job it shows that you aren’t stable and perhaps you may not be able to pay your loan instalments on time, every time. But if you are doing a job for long, it will send the message that you are well settled in your job and getting regular income on time every month. And, so you can repay your loan without any breaks or disturbances whatsoever.    

Summary

Just don’t do the things mentioned before you get a home loan in Germany. German banks may not give you a loan if they find out that you have changed your job, or if you are not paying your invoices on time. Your creditworthiness will nose-dive in such cases. 

What does the notary do? What do you need to do? What else is happening in the background? Get answers to all these! 

Notaries in Germany validate and attest documents and act as public officers. German notaries also have the permission to deliver legal assistance at the time of concluding contracts. 

After you sign the purchase agreement at the Notary, the real estate purchase contract is considered in effect so that your proprietorship of the property is also secured from there on. 

You have to pay the selling price: “step by step” against procurement of the proprietorship of the corresponding real estate, as per the wording in the real estate purchase agreement. So, not only you as the buyer is assured of the ownership, but also the home seller is guaranteed to get the fixed selling price on time. A notary serves as a neutral and principled party to monitor the conditions and to perform a correct additional process.

Now the process!

1.           Sending copies to respective parties: After you sign the purchase agreement at the notary, he stamps it, notarizes it and then sends copies of the agreement to the respective parties—at the very least to: The seller, the buyer, and the income tax office.  

2.           Notary Applies for Notice of transfer of title (Auflassungsvormerkung) at the court. The notary tells the court that you just signed the purchase agreement and your name should be put in the records as the next owner of the property. This is to prevent the seller from selling the property again to a different party.    

3.           Right to purchase by city: It’s also found out if the city / community has any objections to the sale and transfer of the property in question.

4.           Notary checks the cancellation permits with the Seller’s bank. The property might have been given as collateral a few days back.

5.           Check if others have a right to buy the property: The notary will get all necessary approvals in favour of the buyer during this period, e.g. from the leaseholder in case of leasehold. It’s also checked if someone else had any first rights to buy the said property and if he/she has given his approval for the sale of the same.

6.           Informs the property management: He also informs the property management in case of an apartment and gets his sanction if it is required.

7.           Due date notification: As soon as all necessary steps have been settled, the property should be free of any encumbrances by the home seller. Afterwards, the selling price is due on the part of the buyer. The notary now contacts the buyer by post and asks the amount as per the purchase agreement.

8.           Notary asks the court to update the land register: After successful payment and subsequent written confirmation by the home seller to the notary public, the buyer’s name is eventually entered in the land register as the new proprietor of the property.

9.           Taking possession of the property: Subsequently, it is essential to hand over all related keys to the new owner. You may either move in or get rent from the property. Once you take possession, take meter readings for gas, water and power. This is necessary to formalize things and inform the concerned bodies as to whom in future they have to send their bills.

10.         Land transfer tax: You will get an invoice at some point in time and only after you pay the bills will you be acknowledged as the new owner of the property in the records.

11.         Receive updated land register: Only after you settle the land transfer tax will you be acknowledged as the new owner in the updated land register.  The court will wait till that time.

12.         Property insurance: If you want, you can take over the premium of the previous owner or get new insurance for your property.

Final Thoughts

A lot of things happen after the notary notarizes your property papers. Lots of clearances and NOCs are taken from the concerned people and departments before the property papers are legally transferred in your favour and you are officially made the owner or the proprietor of the property. Check with an expert if you find any difficulties or need some more information on the subject. Buying a house in Germany is a big life-changing decision. Don’t take any chances!

We also made a detailed video on this topic. Head on over to our Youtube – https://www.youtube.com/watch?v=4ncV5zhu3R8

Germany is a nation of renters. A report suggests that as high as 58% of Germans live as tenants in rented properties. This low home tenure rate is something difficult and puzzling to understand for people from outside, especially since several factors speak in favour of acquiring a home in the overseas hotspot. 

Despite the fact that the rates of interest for mortgages have increased in Germany, of late, they are still among the lowest amongst the major economies. Longer fixed interest rates are also incredibly appealing in the European nation, specifically the 10-year fixed rate. Besides, you can get very large sums financed here, and in some circumstances, you can even get full financing, and this includes the purchase expenses.

Top 3 Ways to Finance Your Home in Germany

You have several good options to finance your home here in Germany.  The 3 below are the key ones: 

Annuity Loan 

This is perhaps the most popular option. An annuity mortgage is a fixed-rate loan over a period of five to 30 years and the monthly installments stay the same for that specific period, throughout the life of the mortgage. In the beginning, you pay generally interest, with a small amount being used for repaying the original loan. Over a period of time, as the loan is slowly paid off, while the interest portion nose dives, the repayment portion heads north.

For instance, let’s assume you want a loan of EUR 480,000 and have aligned an interest rate with the bank of 3%. Besides the interest rate, you will also be re-paying the loan every month. Let’s also assume you have a repayment rate of 2% – which is rather common. In such a case, your annuity will be 3% + 2% = 5%. In this case, your monthly installment would be 5% off EUR 480,000 divided by 12. This means EUR 2000. 

In an annuity loan you, will be repaying your loan on a monthly basis and therefore cutting down the principal. By doing so, the interest amount of the following month will drop. But as the monthly installment is constant, the value of repaying the principal amount will head north in the next month. 

Interest only loan 

Also called Bullet Loans, Interest Only Loan is another good choice to finance your house in Germany. Here, let’s assume you will be obtaining a loan of EUR 480,000 from a bank at a fixed interest rate: say 3%, and only pay the interest amount to the bank. 

Here, the repayment of the principal amount will be put on hold for the period of the contract, let’s say, 15 years. As a substitute for repayment, both parties will agree on a so-called repayment surrogate. This will be saved independently to be used at the end of the term to repay the loan or parts of it. Insurance policies, building society loans or investment funds are some examples of such surrogates. This surrogate will then be given to the bank as collateral.  

The drawback is that the amount of interest you would be paying in the 15 years will be comparably higher, vis-a-vis in an Annuity Loan, as you won’t be repaying any principal through the loan period of the contract. 

Significantly, some investors use this financing option as it gives them the chance to offset the value of interest they are paying as an expense in their tax declaration. 

Variable Loan 

Another excellent option to finance your property is a variable loan. In this option, you are not aligning on the duration of a loan contract. With this type of mortgage, you can gain from fluctuations in interest rates, which may allow quicker repayment. 

As mentioned earlier, the interest rate will be variable and may change on the basis of the Euro Interbank Offered Rate (EURIBOR). 

The best thing about Variable Mortgages is that they are flexible, and this helps you to either make larger payments, or end the mortgage minus any penalties. The only drawback is that not every bank will provide you with a variable loan as the administrative work to offer this loan is nearly as much as giving an annuity loan. 

You have some more good options. Check with the professionals dealing with home loans. They will guide you in a proper way so that you can make the best possible decision and choose the finest available option to finance your home in Germany!  

Final Thoughts

Annuity Loan, Interest Only Loan, and Variable Loan are th;e three most popular loan options to finance your home in Germany. All these have both pros and cons. Check with the professionals dealing with home loans. They will guide you in a proper way so that you can make the best possible decision and choose the most suitable option to finance your home in Germany!   

Several factors impact interest rates in Germany. If you have decided to settle in or to spend a considerable time here, for a job or other purposes, and wish to get a loan so that you can buy a house, or an apartment –use the information shared here. Take a well informed and mature decision! 

Now take a quick look at the 10 factors that impact interest rates in Germany!  

10 Most Important Factors that Affect Interest Rates in Germany 

1. Current Market Rates: Current market rates will impact the interest rates the most. Unfortunately there’s no way to influence this. Your home loan consultant will know whether the rates of the banks are increasing / decreasing in the next couple of days and will be able to guide you.  

2. The Loan Amount & the Term of the Loan: How much you plan to take as a loan–this is important from the viewpoint of fixing the interest rate for you by the bank. Some banks in Germany have a threshold of 50k, 100k, 150k EUR. In case you want to take a loan less than that figure, don’t be surprised if the banks refuse to give you a loan or increase the interest rate. If we talk about the terms of the loan,  banks decide the rates on the basis of the 5, 10, 15 year terms– and depending upon what’s important to you, security, paying off the loan fast, etc. you might want to change the term to adjust to your specific needs.  

3. Valuation of the property & loan to value: Banks will always like “to be on the safer side”. If you’re purchasing a property that’s valued at, say, 700k, and for this, you need a loan of 700k, banks will call this is a 100% finance. If the property is valued at 600k, and you require a loan of 360k, then your lending bank won’t be so uncomfortable (= 60% financing). They’d always chose the lesser risk option for them and pass on the reduced risk in form of a lower rate of interest rate to you. 

4. Credit Rating (Schufa): Your credit score is a vital element that can influences your interest rate. While at some banks the credit score is a gating criteria to get a (home) loan in the first place, at other banks buyers with higher credit scores get lower rates of interest, compared to those with comparatively lower credit scores. Credit scores are calculated on the basis of the information in your credit report, which reveals the details about your credit background (Watch our video on credit rating here), and this includes your loans, credit cards, not to mention payment background. So, prior to beginning mortgage hunting, check your credit, and appraise your credit reports for mistakes, if any. In case you come across any such mistakes, bring it to the notice of the concerned credit reporting firm fast.  

5. Available Securities: It’s all about cutting down the risk for a bank. If you can produce more securities before your banks, or show that you have some other property in Germany, the interest rates will be somewhat lower for you. 

6. Net Sustainable Household Income: The more the total household income you have, the lower risk will be for the bank, and, as a result, the lower rate of interest for you. The banks also look at the probationary time-frame. In case you are doing a job, and serving your probationary period for it, the banks will see it as a risk, and as a result, charge higher rates.  

7. Usage: What’s your purpose of acquiring the property? This will also impact the rates. Banks often see “own use” as a less risky option and see the properties–acquired for the object of investment–as a higher risk. Reason for this is that tenants may not pay the rent on time, or you might not have back-to-back tenants- your lending bank will consider this, and it will mean a higher rate of interest for you.  

8. Terms & Conditions: The specific terms and conditions will also affect the rates. You might get the option of paying a lump sum per annum. In most cases   that is 5% of the initial principal. In case you don’t require that flexibility you may ask your bank to remove that part – decreasing your flexibility but also increasing the profit options for the bank – and thereby decreasing the interest rate for you. 

09. Speed of Repayment of the loan: Some banks may express an interest in getting a principal repayment of 2%. Then some other banks may want principal repayment of 2.5%. Those banks  might reduce the rate of interest as you are decreasing their risk at a faster pace.. Get in touch with your home loan advisor! He will guide you properly.  

10. Own Equity: The most important point in cutting down the risk for the banks is to bring in your own equity. The more equity you bring in, the less will be the risk for the bank, and as a result, the less will be the rate of interest for you. 

We’ve recently put up a video on Youtube on this very same topic.  

Video – 10 Factors that influence the interest rates in Germany | Ajay Dhingra | Ghar In Germany