What is mortgage lending

Creditworthiness: Who Can Get Home Financing?

What does creditworthiness mean in home finance?

When it comes to mortgage lending, creditworthiness is the proof of the extent to which you are able to repay the building loan to the bank. This solvency is generally known as creditworthiness. The better your creditworthiness with a real estate financing, the higher your chances of getting the home loan. In addition, with a positive credit rating, your prospect of low building interest increases. If, on the other hand, your creditworthiness is not so good, you have to expect higher interest rates or difficulties in lending.

Decision criteria for mortgage lending: This is how the bank proceeds

Before the bank makes you a binding offer for mortgage lending, they will check your creditworthiness. It is even legally obliged to do so: On the one hand, this protects the bank against payment defaults. If she sees that you cannot service the loan regularly, the bank will refrain from lending. On the other hand, you as a borrower should be protected from over-indebtedness. Because if it is already foreseeable that there is a risk of payment defaults, over-indebtedness can arise after a short time. The result: your house is foreclosed and you are left with the debt.

For the credit check when buying a house, the bank obtains information - on the one hand from you and on the other hand from external credit agencies such as Schufa. Here we present to you the criteria that influence your creditworthiness:

What can I afford?
1. Income and wealth

In order to show the bank that you can also service the real estate loan, you must provide detailed evidence of your income and financial circumstances. This includes salary statements for the last six months, payments from pensions and income from tenancies. Existing assets in the form of stocks or real estate also have an impact on the creditworthiness of mortgage lending.

The bank then sets a maximum monthly rate of 35 percent of your family net income. Low-income earners, for whom a low monthly rate is already a drain on their budget, may have a harder time obtaining home finance due to their lower creditworthiness. Because according to the Consumer Credit Directive, only those who have sufficient income for the entire term of the loan are creditworthy. So low-wage earners have to bring more equity and collateral than high-earning applicants.

Your age can be decisive for a positive loan decision: the age of majority is a basic requirement in order to receive a real estate loan. It can be difficult - but not impossible - for older interested parties. However, since they often have a higher income and more equity than younger builders, mortgage lending is often not a problem for those over 50.

3. Marital status and children

A crucial factor in the creditworthiness of a home loan is your marital status. You have the best chance of a low interest rate if you are married or in a partnership. Then you can score with two incomes. If you are single, have a well-paid job and a proper Schufa, mortgage lending is usually not a problem either.

The number of children also has an impact on your creditworthiness when buying a house. Children cost money that you then lack for the repayment of the building loan. Therefore, as the number of dependent children increases, so can the difficulty of obtaining mortgage lending. It is particularly difficult for single people with children: Since maintenance payments and child benefit are not recognized by the bank in the household bill, the income available for repayment decreases and with it the creditworthiness. If the collateral is insufficient, the bank can reject the loan or request a surety.

4. Employment relationship

The profession and the industry in which you work is another decision criterion on your way to mortgage lending. As a civil servant or employee in the public service, you have a very good chance of getting mortgage lending because you have a steady income and secure employment.

Those who work independently or as a freelancer often have an irregular income. The bank therefore often requires proof of wages for the past three years. If you can show that regular orders can be expected in the future and also bring a second borrower with you, building finance can also be realized for the self-employed.

The length of employment with your employer is also important. The longer you've been employed, the higher your chances of getting a loan. If, on the other hand, you are still in the trial period, this often has a negative effect on your creditworthiness when it comes to mortgage lending. Some banks exclude mortgage lending entirely during the probationary period, while other banks also provide financing during the probationary period. For example, if you switched directly from your previous employer, mortgage lending is usually not a problem. In most cases, however, the first payment will only be made after the trial period has ended.

The same applies to fixed-term employment contracts. Usually these workers find it harder to get a loan. If, on the other hand, the time limit has already been extended several times and this has been confirmed by evidence, banks are more willing to provide financing.

Equity is an important building block for your financing. Not only does it have a positive effect on your home financing creditworthiness, but it also increases your prospect of low mortgage rates. The motto is: the more, the better! The more equity you bring with you, the higher your chances of getting cheap mortgage. At least the ancillary costs, which can amount to up to 15 percent of the purchase price, should be paid out of pocket. Those who can bring in even more equity lower the financing risk and increase their creditworthiness with the bank.

Incidentally, not only cash benefits are counted as equity, but also personal contributions - i.e. work performed by the bank itself when building a house - count as equity for the bank.

Collateral increases your chances of getting a cheap construction loan when doing the credit check for the house purchase. This includes, for example, unencumbered real estate, land, securities and precious metals. You can also secure the mortgage with a second borrower or a surety.

The banks also take a close look at the property itself. In this way, the bank wants to ensure that the property is of sufficient value to still pay off the mortgage in full in the event of a possible resale or a possible foreclosure auction. Statements about the age of the property, the current condition and the features of the property are particularly important.

Location can also affect lending. Properties in a preferred location are more likely to be financed than a house in need of renovation in a structurally weak area. All of these factors flow into the market value of the property. In addition, the bank also calculates the mortgage lending value of the property: This is the value that the bank receives for the property in the event of a foreclosure sale, for example. The mortgage lending value is around ten to 15 percent lower than the calculated market value.

In addition to its own decision-making criteria for building financing, the bank primarily trusts credit agencies such as Schufa, Bürgel or Creditreform when it comes to questions about payment behavior. All data on your previous payment history is collected there. The most important question is whether all contracts have always been served on time or whether there have already been irregularities in repayments. Information on existing or already concluded loans as well as current contracts and bank accounts are also stored with Schufa.

From the resulting Schufa score and the score determined by the bank, there is a probability value of your creditworthiness, which predicts whether you can repay the loan for the mortgage loan. If this is positive, you will receive the loan; if it is negative, the loan is refused or a higher interest rate is agreed.

Important documents for the credit check for the house purchase

In order for the bank to check your creditworthiness, you need to provide the bank with various documents. This includes:

  • Your identity card
  • Proof of salary or income for the last three months
  • Proof of additional income
  • An asset report
  • Proof of fixed monthly expenses
  • Proof of permanent and permanent employment
  • Possibly copies of existing credit agreements

How your creditworthiness affects the interest rate

Many prospective builders ask themselves the question “Am I creditworthy to build a house?” Before a credit check. As already mentioned, there are some features that you can use to have a positive impact on your creditworthiness for a home loan. This includes a permanent job and a steady income as well as sufficient equity. It is also helpful to prove that you can pay the monthly installment on a permanent basis - just like a positive Schufa report.

Before applying for a loan, obtain your own information from Schufa and check your score. This is possible once a year free of charge. This allows you to clean up possible errors and thus improve your creditworthiness.

The better the score that the bank calculates, the higher the probability that you will get the loan and the lower the interest rate offered. Especially when it comes to mortgage lending, which involves high sums and long terms, your creditworthiness can tip the scales and quickly make your financing several thousand euros more expensive or cheaper. Of course, you can also get construction financing with a lower score and a fixed-term employment relationship or during the probationary period - but then you have to finance more expensive at a higher interest rate.

Calculate mortgage interest

Would you like to know what interest rate you can expect? With our building interest calculator you can easily determine your current building interest: