Financing a house purchase with foreign income

Hello everyone,

we have been looking for a house in Germany for a while now. Now that we are coming close to actually buy one, it seems we can't get a loan through German banks because our income is not earned in Germany. In the Summer the DKB was still willing to do financing according to Interhyp, now they have changed the rules, so I was told by Interhyp. What can we do??? Thanks for any help and advice!

But you are putting your monthly income through a german bank, month in, month out right?
Are you salaried? self-employed? Business or private income overseas?

No, the money goes to a US bank account. Via ATM I take money out and pay it into my German account to pay for bills. We are US military.

It will depend on how much LTV you expect for your mortgage. Anything close to 60% should not be a problem since I can get that for foreign investors who live and earn their money outside of Germany. A higher LTV will be a huge problem, though. And unfortunately what happened to you with DKB has also happend with other banks like DSL and so on. Part of the over reaction regarding the subprime crisis I guess. This is not saying you are subprime, mind you, it is just that they tighten up a lot right now, even in areas where there is no additonal risk.

Cheerio

That is really frustrating. 40% down is something that we just don't have. Who does? Does it not help that I am German? Or how about a co-signature from a German relative? I can't believe that we won't be able to buy a mid-priced house in Germany with our fairly good income.

One more thing: We are living in Germany and will stay here! The house will be our own residence. Thought that this fact was maybe not clear.

It was indeed not entirly clear from the first reading. If you are a German national, living here etc., things might (only "might", mind you) be different. From here on I guess much more details are required than would be for the ears and eyes of the TT crowd. If you are really interested, send me a message (click below) so that I have your email-address and contacts and I'll give it a check. The check is for free, but it is understood that ifI bring you a mortgage offer within the parameters you seek that you will take in only through me and not go around me to the bank... fair is fair, right?

Cheerio

I sent you the message. Thank you!

You should just rent until you have enough money to put down a good deposit. It's not as if house prices are going up, you're not going to "miss the boat". You'll save a load of money this way too.

Well, to actually have 40% it takes a long time... That's not just done within a year. We have been moving on average every two years and we are sick and tired of paying rent (at sometimes unbelievable high prices). Now that we are going to settle we want to invest every Euro in something that stays ours! House prices may not go up, but interest rates will...

kajomi: tks for email, will reply soon
with regasrds to interest rates: all experts I know see rather another short term decline of interest rates with German mortgage than the opposite. If -as is to be expected - the US Fed reduces interest some more and the increase of the EUR value because of this growth even stronger, cuts in European interest rates by the ECB are inevitable - even though we are now facing in Germany first fears about inflation which would call for higher interest rates.
but to have to wait a couple of weeks or month should actually get you a better deal... even though on the long run I am with you that interest rates will go up to an average of 6-7 % again eventually.

If you are located in Bavaria we might also try to see how Austrian banks will think about a mortgage for you guys...

If you guys are US military, can't your relocation officer or someone on the base help you through this?

I don't mean this to sound insulting, but you seem to have the typical American/English/Australian attitude that you are throwing your money away renting. Wait until you get a mortgage - then you will be throwing away your money in interest payments to the bank at a much higher cost than your rent, especially if you don't have a good deposit.

You talk about rents being high. I don't know how it is where you are in Bavaria, but I have an apartment in the center of Munich. I pay 830 euros a month cold, which means about 10,000 euros a year. To buy this flat (80sqm, Neuhausen), including the fee's that are charged, would cost me easily 300,000 euros. Even at a rate of 5% per year, I'd be paying 15000 euros just in interest. Therefore, by renting I am saving 5000 euros every year compared to buying.

You're exactly right - house prices will not go up but interest rates will. This is a valid point - they are still relatively low at the moment - but you can still secure these rates by doing a Bausparvertag type of scheme, and with this you will be earning interest not paying it out, and will still get the cheap loan when you have a decent down payment.

If you want something to call your own, then that's fine. But if you're not in a position to put down a good deposit, financially as I see it, it would be better to wait a while.

I don't want to offend anyone - but usually there's only very little help to be expected. Depends on who you talk to. But so far we have not found anyone that could give us any detailed information on the issue.

I am very aware of how high the monthly payments on a house would be for us. The government pays us a housing allowance that would cover mortgage payments. We would be stupid not to use that. For us the mortgage payment would be lower than the 1400 Euros rent (cold) that we pay now. Besides that, we want to settle, meaning not have to face a landlord telling us some day that we have to move out.

If you don't mind me asking, in which town/city is this place you want to buy?

I'd be interested in knowing that too. 1400 euros a month cold is a big rent. You've either got a huge house, or you're living somewhere even more expensive than Munich! In Munich at least, if you're paying 1400 cold rent on a place, it would cost at least 500,000 euros to buy.

Hutcho, I can't imagine any place in Germany with a US military presence that would be more expensive than Munich, although Stuttgart and Wiesbaden (both obviously not in Bavaria) are also quite expensive. I have heard that some of the landlords in these towns with a US military presence charge some steep rents.

Northeastern Bavaria has the highest unemployment rates in the Freistaat, and there is still a pretty significant US presence there, as well as in the Bayerischenwald. Neither is an area I would advise anyone to buy. Würzburg isn't as expensive as Munich, so what does that leave, maybe Aschaffenburg (not sure if there is still a Kaserne there)?

I am very aware of how high the monthly payments on a house would be for us. The government pays us a housing allowance that would cover mortgage payments. We would be stupid not to use that. For us the mortgage payment would be lower than the 1400 Euros rent (cold) that we pay now. Besides that, we want to settle, meaning not have to face a landlord telling us some day that we have to move out.

Sorry, didn't mean to double post.

We are living in Garmisch:-) The place we are going to move to is close to Amberg. Property to buy is a lot cheaper there, rent is a bit less.

I forgot about Garmisch- rather ironic since I was just there a few weeks ago (albeit nowhere near the Kaserne). Definitely talk to Starshollow about one of those Austrian banks.

By settle there, do you mean live there after ETS?

We want to settle before ETS. Why are you asking? My husband has not decided yet for how long he'll stay in. When he decides to retire there will be plenty of civilian jobs there for him in the Oberpfalz area.

What you are doing makes sense; however, a bank is going to have concerns about how you will pay back a 30-year loan since he won't be in the military forever. Unless he is retiring as a flag officer, I doubt that you will be able to afford a house solely on his retirement pay. Banks don't see this type of thing every day. If he has a job lined up after he retires, I would suggest getting a letter which states that, including the salary he will have. If you are also employed, that will obviously help, but, again, I doubt a house is affordable for most families, especially not with just one and no 40% downpayment.

His retirement pay should cover the entire cost for the house (mortgage and utilities). The other income earned by him and later me would be for everyday living. Sounds pretty safe to me...unless the Dollar weakens to nothing:-(

That's why I suggest getting some sort of statement that he has a job at x amount salary awaiting him (sounds like you are a ways from that, though) because although the retirement pay is a sure thing, the lender may not be convinced that future employment at x salary for either of you would be.

As far as I understand, the problem is not the amount of future income, but the fact that income is based in the US and thus untouchable for the banks. Any German could loose his/her job, no bank ever has a guarantee there. But any income earned could be accessed by the banks if things go bad. Not in our case, unless I have a job that pays in Euros. I do understand the point the banks have there...

Correct me if I am wrong, but if someone doesn't make payments on their mortgage in Germany, won't the house be taken from them instead since it will be collateral for the loan? This is why lenders want things like 40% downpayments. They know if you put that much of your own cash into the house, you will do everything you can to make payments on it. When you are a mortgage holder, it is obviously much easier in the long run to seize a house from someone who doesn't pay than to go after their earnings. The house and its 40% equity will almost certainly still be standing there, a person's earnings may not.

Yes, a German could certainly lose their job, but if I were loaning money I would want to see that a foreigner had strong ties to Germany before I would give them a loan with little or no money down.

While we will have to see what I can dig up on the bank side with higher LTVs then 60%, one has to understand the reckoning of German banks when it comes to risk computation. If the borrower defaults on his payments, it is a rather lengthy process before the bank can actually seize the property and auction if of - we are talking up to 2 years here according to German law and slow courts. And when the property is auctioned, the first bidding can be around 70% of the value estimated by a court appointed valuator and you can bet that this value will be lower than the price you paid for the property because now other parameters are factored in. If the first auction does not bring a result in excess of 70%, a second auction will be convened and during this auction bids at 50% are acceptable unless the bank steps in a takes the property over in their books.

that is why German banks in case they see no chance to seize other assets or income will seldom lend more than 60% of purchase price (which by the way means you will also have to finance the 10% costs on top of the purchase price for notary, land tax and real estate agent out of your own pocket which means you actually borrow only 54% of the total value or so).

But I do not want to totally discourage any interested real estate buyers at this point: check what the market offers finance wise and then make your decision. But the computation of HUTCHO is not to be disregarded also, some number crunching might show if it is a good solution to buy property or not.

Cheerio