When buying property in North Rhine-Westphalia, substantial incidental costs arise on top of the purchase price: the real-estate transfer tax (Grunderwerbsteuer) alone amounts to 6.5 percent in NRW, plus notary and land registry at around 1.5 to 2 percent, and possibly a broker's commission. Many buyers wonder whether these incidental purchase costs (Kaufnebenkosten) can simply be co-financed through the mortgage/construction financing (Baufinanzierung). In principle this is possible, but it comes at a price: banks primarily finance the property's mortgage lending value, while the incidental costs increase the loan without raising the collateral value. This guide explains how full or 110-percent financing works, why it is more expensive and riskier, how the real-estate transfer tax is treated for tax purposes, and what to consider when planning your equity. As property experts on the Königsallee in Düsseldorf, we see every day how much well-thought-out cost planning determines the success of a purchase. This article provides general information and does not replace individual financial or tax advice.
Which incidental purchase costs arise when buying property in NRW?
The purchase price is only one part of the bill when acquiring property. On top of it come the so-called incidental purchase costs, which, depending on the constellation, make up a noticeable share. In North Rhine-Westphalia they are typically composed as follows:
- Real-estate transfer tax (Grunderwerbsteuer): 6.5 percent of the purchase price. NRW is thus among the federal states with the highest rate; nationwide the range lies between 3.5 and 6.5 percent.
- Notary and land registry: together, as a rule of thumb, around 1.5 to 2 percent of the purchase price. The notary notarises the purchase contract and the conveyance, and the land registry office records the change of ownership.
- Broker's commission: only applies if a broker is involved. When buying owner-occupied residential property, buyer and seller have generally shared the commission since the 2020 reform.
In total, in NRW you should reckon with incidental purchase costs in the order of around 8 to 15 percent of the purchase price, depending on whether a broker is involved. For a purchase price of 500,000 euros, that roughly corresponds to 40,000 to 75,000 euros that must be raised additionally.
What does the bank finance – and why are the incidental costs often left out?
A bank grants a property loan not on the basis of the purchase price alone, but on the basis of the mortgage lending value. This is a cautiously determined value intended to reflect the value of the property achievable over the long and lasting term. It usually lies below the current market or purchase price, because the bank applies a safety discount of often around ten percent.
Decisive for your terms is the loan-to-value (Beleihungsauslauf): the ratio of the loan amount to the mortgage lending value. The lower this ratio, the lower the bank's risk and, as a rule, the cheaper the interest rate.
The central point: the incidental purchase costs do not increase the property's mortgage lending value. Real-estate transfer tax, notary and land registry costs, or a broker's commission flow into the assets of the state, the notary or the broker – they create no additional value the bank could realise in an emergency. If they are co-financed nonetheless, the loan amount rises without the collateral growing along with it. This is precisely why banks primarily finance the purchase price or the mortgage lending value and prefer to see the incidental costs covered by equity.
What does 110-percent financing or full financing mean?
When it comes to co-financing the incidental costs, you will mainly encounter two terms:
- 100-percent financing: The bank finances the full purchase price, while you raise the incidental purchase costs from equity.
- 110-percent financing (full financing): The bank finances, beyond the purchase price, also the incidental purchase costs. The approximate figure of 110 reflects the purchase price of 100 percent plus around 10 percent incidental costs.
With 110-percent financing, the loan amount therefore exceeds the value of the property. The loan-to-value thus lies, in arithmetical terms, above 100 percent – the bank lends more money than the property provides as collateral. Such financing arrangements are offered in principle, but they generally require very good creditworthiness, a stable, well-documented income and secure employment. For the self-employed or where the household budget is tight, banks often reject full financing.
Why full financing of the incidental costs is more expensive and riskier
Co-financing the incidental purchase costs is convenient because less equity is needed. This convenience, however, has clear disadvantages against which consumer advocates regularly warn:
- Higher interest rate: As the loan-to-value rises, the interest rate rises. Favourable terms are typically available at a ratio of 60 to 80 percent; at 100 percent and above, banks demand noticeable interest surcharges. Over the entire term, additional costs of many thousands of euros can result from this.
- Higher residual debt and instalment: A larger loan amount means a higher monthly burden and a higher residual debt at the end of the fixed-interest period, which must be refinanced.
- Slower wealth building: Anyone starting at 110 percent effectively begins with negative equity. It takes considerably longer until the repaid debt falls below the property value and genuine wealth arises.
- Greater risk in the event of a sale: If the property has to be sold in the first years – for instance due to a job change, separation or illness – the proceeds often do not suffice to redeem the loan in full. A residual debt remains despite the sale.
Full financing is therefore not taboo, but a solution for clearly defined situations with above-average creditworthiness – not the normal case of sound financing.
How much equity makes sense – the common rules of thumb
A widely recognised rule of thumb is: Raise at least the complete incidental purchase costs from equity. This way you avoid the loan exceeding the property value, and you generally secure better terms.
Considered more comfortable is an equity ratio that additionally covers part of the purchase price. It is often recommended to finance, alongside the incidental costs, around 10 to 20 percent of the purchase price yourself – so roughly 20 to 30 percent in total. This lowers the loan-to-value into a favourable range and creates a buffer for maintenance and unforeseen expenses.
Equity counts not only bank deposits, but for example also building-society savings, securities, an existing plot of land or own work during construction. At the same time, it is important not to commit your entire assets: a reserve of several months' expenses should always remain liquid. How much equity is optimal in the individual case depends on income, life situation and interest-rate level – that belongs in a conversation with your financing bank.
Real-estate transfer tax for tax purposes: incidental acquisition costs and depreciation
For tax purposes, the real-estate transfer tax is part of the incidental acquisition costs (Anschaffungsnebenkosten) within the meaning of § 255 HGB. The same applies to the notary and land registry costs of the ownership transfer as well as to a broker's commission. Whether you can use these costs for tax purposes depends decisively on the use of the property:
- Rented property: Here the incidental acquisition costs – and thus also the real-estate transfer tax – increase the assessment base for depreciation for wear and tear (AfA) under § 7 EStG. Via the annual building depreciation, usually 2 or 3 percent depending on the year of construction, you claim these costs proportionally for tax purposes over many years. Note that only the share attributable to the building is depreciated, not the share for land and ground.
- Owner-occupied property: Anyone who moves in themselves cannot claim the real-estate transfer tax and the remaining incidental acquisition costs for tax purposes. There is no depreciation on owner-occupied residential property held as private assets.
In tax terms, the rough rule is: with renting, the incidental costs reduce tax over time via depreciation; with owner-occupation, they do not. How exactly this plays out in your case, and how purchase price and incidental costs are to be allocated to land and building, you should clarify bindingly with your tax adviser.
Planning incidental costs wisely – what to consider when buying
Well-thought-out planning of the incidental purchase costs begins long before the notary appointment. These points help you avoid nasty surprises:
- Factor in incidental costs from the start: Always calculate your budget including real-estate transfer tax, notary, land registry and possibly a broker – not just the purchase price.
- Set equity realistically: Aim to finance at least the incidental costs and ideally part of the purchase price yourself, and keep a liquidity reserve in reserve.
- Compare terms: Obtain several financing offers and pay attention to the effective annual interest rate, the repayment level and special-repayment options, not just the nominal interest rate.
- Check the assessment base: Movable inventory sold along with the property, such as a fitted kitchen, is not subject to real-estate transfer tax if it is shown separately and realistically in the purchase contract. This can legally reduce the tax burden.
- Know the market value: A realistic market value is the basis for assessing the mortgage lending value, equity requirement and terms.
This is exactly where our work comes in: Richter Immobilien-Transaktionen accompanies buyers in Düsseldorf and NRW with well-founded market assessment and a network grown over decades with more than 20,000 contacts. You arrange the financing itself with your bank and the tax questions with your tax adviser – we ensure that the property and the price are right.
