Most costly mistakes happen before you sign on the dotted line and can be avoided with a bit of preparation. This guide to mortgages highlights the seven we come across most frequently in practice, along with the solution for each.
It’s usually a combination of a budget that’s too tight and repayments that are too low: the loan runs for a long time, the outstanding balance remains high, and when the loan is renewed, a higher interest rate is applied to a large sum. Added to this are ancillary costs amounting to between 8 and 15 % of the purchase price, which banks do not cover; the ancillary costs calculator shows the amount.
The guide to mortgage financing lists seven common mistakes, all of which occur before the contract is signed. Firstly, buyers often underestimate the additional costs involved in a property purchase. Real estate transfer tax, notary fees, land registry charges and estate agent’s fees amount to between 8 and 15 % of the purchase price, depending on the federal state, and banks do not include these in the loan. Secondly, people only approach their own bank, which, naturally, is only familiar with its own terms and conditions.
Thirdly, the capital repayment is set too low; this stretches the repayment period over decades and leaves a large outstanding balance at the end of the fixed-interest period. Fourthly, financial assistance is overlooked, even though KfW funding must be applied for before the contract is signed and cannot be obtained retrospectively. Fifthly, the fixed-rate period does not fit in with one’s life plans. Sixthly, there is no financial buffer for maintenance and repairs.
Seventhly, the documentation is incomplete, which delays any approval. None of these mistakes is expensive to avoid, but each is costly to rectify. It becomes most expensive when two of them coincide — for example, repayments that are too low and a lack of a financial buffer.
Underestimated purchase costs, only consulted the main bank, repayment instalments too low, forgot about financial assistance, unsuitable fixed-rate period, budget with no contingency, incomplete documentation.
It is usually a combination of a tight budget and insufficient capital repayment — a high remaining balance is met with a higher interest rate at the end of the fixed-rate period.
You run out of equity just before the notary appointment: transfer tax, notary, land registry and agent’s commission add 8–15 % of the price, and banks do not cover them.
Mistake 2Because your bank only knows its own terms; in special circumstances some banks decline where others would finance without problems.
Your regular bank is convenient, but rarely the cheapest option — and it only knows its own terms and conditions. Particularly in special circumstances (self-employment, income from abroad, capital investment), some banks turn down applications where others would provide financing without any problems. The solution: compare several banks. That’s exactly what we do — through a network of banks and pools, rather than just one institution.
Mistake 3A 1 % repayment keeps the instalment low but stretches repayment over decades and leaves a high balance at the end of the fixed-rate period.
A 1 % capital repayment keeps the monthly instalment low, but extends the repayment period over decades and leaves a high outstanding balance at the end of the fixed-rate period — with full exposure to interest rate fluctuations. Solution: Choose your capital repayment strategy carefully and work out the implications. The repayment calculator shows the remaining debt and interest costs year by year.
Mistake 4The funding is lost: KfW loans, repayment grants and regional funding must be applied for before a contract is signed, not retrospectively.
KfW loans, repayment grants and regional funding (Landesförderung) often go unused because they must be applied for before a contract is signed — it is not possible to apply for them retrospectively. The solution: factor in funding right from the start. An overview of KfW programmes and renovation funding should form part of every planning process.
Mistake 5One that does not fit your plans: too short exposes you to interest rate risk early, too long can be unnecessarily expensive.
A fixed-rate period that is too short saves you money initially, but exposes you to interest rate risk at an early stage; one that is too long can be unnecessarily expensive. The right length depends on your circumstances and risk appetite. Solution: Choose a fixed-rate period that suits your life plans and start thinking about your subsequent financing early on.
Mistake 6Because any unexpected expense can throw the financing off balance; maintenance, repairs and life’s uncertainties need a reserve.
When the instalment has been calculated down to the last euro, any unexpected expense can throw the financing off balance. Maintenance, repairs and life’s uncertainties all require a reserve. The solution: factor in a buffer and honestly determine what you can afford — the budget calculator helps you set a framework.
Mistake 7Time: missing or disorganised documents delay approval, and the property may be gone before the bank decides.
Missing or disorganised documents will delay approval — in the worst-case scenario, your dream property will be snapped up before the bank has made a decision. Solution: Get your documents together early and ensure they are complete. My free checklists and self-assessment form will guide you through the process in a structured way.
The common thread: almost all of these mistakes stem from time pressure and a lack of perspective. If you plan, compare and calculate early on, you’ll end up negotiating from a stronger position — and sleep more soundly.
Purchase costs, budget, return on investment, capital repayment and more — all in one place.
It shows the total of the incidental purchase costs for your federal state: real estate transfer tax, notary fees, land registry fees and estate agent’s fees, totalling between 8 and 15 % of the purchase price. Your budget will also need a reserve for maintenance, repairs and life’s uncertainties.
It is usually a combination of a budget that is too tight and repayments that are too low: the loan term is long, the outstanding balance remains high, and when the loan is renewed, a higher interest rate is applied to a large sum. Both of these factors can be calculated in advance and avoided.
An independent adviser compares many banks and knows which institution will finance which type of arrangement. The advice is free of charge for you; the commission is usually paid by the bank. This saves time and often money, particularly if the arrangement does not fit into the standard categories.
Ideally, before you start looking in earnest. With a clear budget and all your documents in order, you’ll come across as a confident buyer — which gives you an advantage when properties are in short supply.
It is almost always for one of four reasons: the property cannot be valued to meet bank requirements; the equity is insufficient to cover the purchase price and associated costs; the income is not sufficient to cover the mortgage repayments in the long term; or the documentation is incomplete. The fourth reason is the most frustrating, because it is entirely avoidable.
There is no fixed threshold — different banks assess the same score differently, and the score is just one of several factors. Negative entries are more important than the number itself: an ongoing debt collection procedure carries more weight than a mediocre score.
There is no bank that is generally more generous. There are banks that are suited to your particular circumstances — whether you’re self-employed, live abroad or own an unusual property. That is precisely why the order is important: first find out which banks will even consider your case, then make enquiries.
At the very least, the incidental purchase costs — real estate transfer tax, notary fees, land registry fees and, where applicable, estate agent’s fees — amount to between 8 and 15 % of the purchase price, depending on the federal state. Banks do not cover these costs; anyone who only budgets for the purchase price will find themselves without any equity just before the notary appointment. The additional costs calculator shows the exact amount for your federal state.
The seven most common mistakes: underestimating purchase costs, only consulting your own bank, setting the repayment amount too low, forgetting about financial assistance, choosing an unsuitable fixed-rate period, a budget with no contingency, and incomplete documentation. Each of these can be avoided with proper preparation — the appropriate solution is listed above for each individual mistake.
Essentially the same seven mistakes as those made by German residents — though one of them carries particularly serious consequences for Germans living abroad: relying solely on their own bank. In specific circumstances, such as when income is earned abroad, some banks may turn down applications whilst others provide financing without any problems — so those who fail to shop around are more likely to lose out than they would with standard financing. Added to this are insufficient provision for ancillary costs, repayment instalments that are too low, forgotten grants and incomplete documentation — all seven mistakes and their solutions are set out in detail above.
Let’s get your financing sorted right from the start. Initial consultation free of charge; the commission is usually paid by the bank.
Budget, ancillary costs, capital repayment and more, tailored to your specific circumstances.
Editorially responsible: Olga Nikushkina — owner, §34i GewO (German mortgage brokerage), adviser register D-W-132-ZUCB-95. Specialised in German property financing with an international dimension: non-residents, foreign-currency income, cross-border workers, expats. Siegfried Perini is entered in the German intermediary register under this licence as a person directly involved in brokerage and advice (§ 11a GewO), active in real estate since 1992. Not legal or tax advice.
