Evaluate a property purchase

The true cost of buying

The purchase price is only the start. The largest add-on is the property transfer tax (Grunderwerbsteuer), set by each federal state. As of 2025 it ranges from 3.5% in Bavaria to 6.5% in North Rhine-Westphalia, Brandenburg, Schleswig-Holstein and Saarland, with most other states between 5.0% and 6.0% (Berlin 6.0%, Hesse 6.0%, Baden-Wuerttemberg 5.0%; Bremen moved to 5.5% from July 2025). On a 500,000 EUR home, the location alone can swing this tax by around 15,000 EUR.

Notary fees are federally regulated and not negotiable, typically about 1.0% to 1.5% of the price (proportionally higher on cheaper properties), and land-registry (Grundbuch) fees add roughly another 0.3% to 0.5%, so legal and registration costs together run around 1.5% to 2%. If an estate agent is involved, the commission (Maklerprovision) is commonly split between buyer and seller, often in the region of 3% to 3.57% including VAT for the buyer's share. Adding these together, plan for total ancillary costs of about 9% to 15% of the purchase price, paid in cash and generally not financeable.

These costs are largely sunk the day you buy: you do not recover them if you sell soon after. That is why the holding period matters so much, and why a purchase you might exit within a few years rarely makes financial sense in Germany.

How German mortgages work

A German mortgage (Immobilienfinanzierung or Baufinanzierung) is usually quoted with a fixed-interest period (Sollzinsbindung) of 5, 10, 15 or more years; the nominal rate is the Sollzins, while the Effektivzins is the effective annual rate including certain costs and is the better figure for comparing offers. After the fixed period ends, you refinance the remaining balance (the Anschlussfinanzierung) at whatever rates prevail then, which is a key risk to plan for.

Repayment is structured around the Tilgung, the annual rate at which you pay down principal. Many borrowers choose an initial Tilgung of around 2% to 3%; a higher Tilgung clears the loan faster and reduces total interest but raises the monthly payment. Lenders typically expect you to bring meaningful equity (Eigenkapital): a common guideline is to cover at least all the ancillary purchase costs from your own funds plus ideally 10% to 20% of the price, so the financed amount stays near or below the property value. The more equity you contribute, the better the interest rate you are generally offered.

For expats, financing has extra hurdles. Banks scrutinise residence status, length of employment in Germany, the type of work permit, and income stability; a short German credit history or a fixed-term contract can reduce the loan amount or raise the rate. Some lenders are more expat-friendly than others, and pre-approval (Finanzierungsbestaetigung) before you bid puts you in a far stronger position.

Buying versus renting

Germany has a large, well-regulated rental market and renting is a respectable long-term choice, not just a stopgap. Because the upfront transaction costs of buying are so high and largely unrecoverable, buying tends to win only over a long horizon, often cited as roughly seven to ten years or more, during which ownership costs are spread thin enough to beat renting plus investing the difference.

A fair comparison weighs the full cost of owning (mortgage interest, Tilgung, ancillary purchase costs amortised over your holding period, maintenance, building insurance, and any homeowners' association fees or Hausgeld) against rent plus the investment return you would earn on the cash you would otherwise tie up as equity. The decision is not purely financial: stability, the freedom to renovate, and protection from rent increases matter too. But if your stay in Germany is uncertain or short, renting is usually the lower-risk answer.

Expat pitfalls

Common mistakes include underestimating the cash needed for ancillary costs (since they cannot normally be borrowed), assuming a home-country down-payment norm applies, and overlooking the refinancing risk when the fixed-rate period ends. Currency risk is real if your income or savings are in another currency than the euro mortgage.

Also factor in the ongoing realities: annual property tax (Grundsteuer), maintenance reserves, and the fact that selling within ten years can trigger tax on any gain unless you have lived in the property yourself. Get independent financing and, ideally, tax advice before signing, and never sign a notarised purchase contract before your financing is firmly confirmed.