The German mortgage process — explained step by step

Mortgage financing consists of several consecutive steps. Knowing the process lets you prepare optimally and speed things up. Here is what happens, in which order.

Step 1: Needs analysis

It all starts with an honest assessment of your financial situation. Determine your monthly net income, list all running expenses and work out which monthly payment you can afford permanently — even in unforeseen situations such as short-time work or parental leave.

Define your wishes: how much living space do you need? Which locations are an option? New build or existing property? Check your equity and consider whether gifts from relatives or dissolving savings contracts make sense.

Step 2: Find the property

With a clear budget you start the property search. Use online portals, newspaper listings and local agents. Take enough time for every viewing and inspect the condition of the property systematically: roof, façade, windows, heating, pipes and any signs of damp.

Ask for the exposé and the energy certificate. For condominiums, the declaration of division, the service-charge statement and the minutes of the owners' meetings matter too. A professional valuation by a surveyor can help judge whether the asking price is fair.

Step 3: Obtain financing offers

Once you have a specific property in view, gather the documents for the financing enquiry. Banks typically need: salary statements of the last three months, your latest income-tax assessment, a self-disclosure form, proof of equity, the property exposé and current land-register extracts.

Get offers from several banks or work with a non-tied financing intermediary with access to numerous lenders. Compare not only the interest rate but also repayment options, unscheduled-repayment rights, the fixed-interest period and flexibility for changing instalments.

Step 4: Financing approval

After you submit your documents, the bank checks your creditworthiness and values the property. The credit check analyses your income, existing liabilities and your SCHUFA data. At the same time the bank values the property — either from the exposé and market data or through an on-site appraisal.

The mortgage lending value is usually 10 to 20 percent below the purchase price. Based on this value the bank determines the loan-to-value ratio and the corresponding interest rate. If the check is positive you receive a binding financing approval — usually within one to three weeks.

Step 5: Purchase contract & notary

With the financing approval in hand you can arrange the notary appointment. The notary drafts the purchase contract, which you receive for review at least 14 days before the appointment. Take the time to read it carefully and clarify any questions beforehand.

At the appointment the contract is read out in full. Both parties can ask questions before signing. The notary then arranges the priority notice of conveyance in the land register, which protects you as the future owner, and the registration of the new land charge in favour of the financing bank.

Step 6: Payout

Before the bank pays out the loan, certain conditions must be met: the land charge must be registered or at least approved for registration with the correct ranking. The bank also usually requires proof of building insurance assigned to the bank.

The payout goes directly to the notary's escrow account or the seller's account — depending on the purchase contract. The whole process from creating the land charge to payout typically takes four to eight weeks. Plan for this period, especially if a fixed handover date has been agreed.

Step 7: After the payout

With the payout, the repayment phase of your loan begins. The first instalment is usually due one month after payout. Set up a standing order or direct debit to ensure punctual payments.

Use unscheduled-repayment options whenever your finances allow. Every additionally repaid euro saves you interest over the entire remaining term. And think about follow-up financing early: at the latest three years before your fixed-interest period ends you should look at the options — forward loan, prolongation or refinancing with another bank.

Keep all important documents about your property and financing in one central place. That way you have everything at hand when follow-up financing comes up in a few years.