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We are planning on buying an apartment or a house in the next year or two and we're trying to work out some calculations.

Situation: we are living in West Germany and and this is where we'd like to buy the property. After tax, we make ~6500EUR per month, of which we save about a half, no less than 35k a year. We have 53k in the bank right now. We are looking at properties priced 350-450k (side costs included - these amount to 8-12% of the purchase amount in Germany). Although we have the option of getting a mortgage with 0 down payment, the terms are disadvantageous, to say the least.

Point of worry: in the area we want to buy, the prices have increased roughly 20% in the past 3 years and I'm not sure it won't hike at the same rate also next year.

Question: is it feasible to take a personal loan of 30kEUR, just to have the money sit in the bank until we find the property (maybe in the spring, maybe at the end of the year) and, instead of saving the money, repay the loan? This would allow us to take a loan at any point in time, without worrying that prices would get out of reach.

The conditions would be: loan on 2-3 years (to lower the monthly minimal payment), adding unemployment insurance for the period of the loan. While looking for the house, we would pay double or triple the minimal monthly payment.

The purpose would be obtaining more advantageous mortgage conditions: lower time period, better interest rate, fixed interest rate on a longer period of time.

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  • I'm not specifically familiar with the underwriting policies of German banks but I would be rather surprised if they considered an x - 30k EUR loan to someone that had borrowed 30k for the down payment less risky than an x EUR loan to someone that made the full down payment from savings. If anything, the latter should be less risky because it involves less interest and a smaller debt to income ratio. In other words, I doubt this would accomplish anything positive.
    – Justin Cave
    Dec 16, 2019 at 20:32

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A loan generally doesn't help with a bigger down payment. The goal of the down payment is to make sure some of your money is invested into the property, not just other peoples', and simply getting a loan from another source doesn't help with that. (There's also a desire to not loan more than the real value of the property, but they don't need 20% down for that.)

A mortgage will usually ask for your bank records, and will notice the monthly loan payments; there's no good way to hide something like that.

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The only situation I can think of where a personal loan can help is when you are not able to qualify for 'benefits' (preferential rates, avoidance of 'escrow accounts', etc) offered by a lender without it. As an example, in the US, many lenders require payment of something called "PMI" (Private Mortgage Insurance) when your down payment is less than some threshold (eg, 20%). This is an added cost to you, the borrower. If you can only afford, say, 17% then you may have to pay PMI until your debt-to-equity ratio improves to that threshold (typically in a few years). This PMI is a fee based on the total amount borrowed. Further, falling below a banks threshold may expose you to inconveniences such as 'escrow accounts' (being required to pay other related expenses such as property tax 'through' the bank, as a way to give the bank more control over such payments). In such cases, borrowing that extra 3% as a personal loan (or from any legitimate source, even another bank) may make financial sense.

I did exactly this on my first home mortgage many years ago. I fully disclosed the situation and the lender fully appreciated what I was doing and why, and didn't penalize me.

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If the loan is from another bank this will not work as you have to declare it when applying for the mortgage.

The scenario you are describing can be achieved if your personal loan is with your family or with your employer. The latter one will of course only work if you have something to offer your employer as security that the bank will not value at the same rate (i.e. shares of a company that is not publicly traded).

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    Legally, you have to declare all loans when you apply for a mortgage, you don't get to leave off loans from family members. If you "forget" about the 30k loan you got from a family member, an underwriter ought to notice the large 30k deposit you made and ask for documentation about where those funds came from and ought to notice the regular payments you're making and ask why you're sending a family member money every month. If you "forget" to disclose something until it is discovered, you're going to attract additional scrutiny.
    – Justin Cave
    Dec 16, 2019 at 22:28
  • Agreed that the family loan can be problematic. But the employer variant can be used with full disclosure if it is structured correctly. It is just important that the employer values something that the bank would not (or not with the same value).
    – Turismo
    Jan 20, 2020 at 16:30

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