Creditworthiness

Creditworthiness - Creditworthiness refers to a borrower’s ability and willingness to repay debts reliably and on time. It is the key requirement for any real estate financing and is assessed by banks based on personal and financial criteria.

Personal and Financial Creditworthiness

Banks distinguish between two levels when assessing creditworthiness. Personal creditworthiness concerns the applicant’s reliability and payment history. Here, the SCHUFA score, past payment history, and employment status play a central role. A negative SCHUFA entry-such as unpaid bills or closed accounts-can significantly complicate or even prevent the granting of a loan. The SCHUFA score is expressed as a number between 0 and 100, with values above 95 considered very good.

Material creditworthiness refers to the borrower’s financial circumstances. Banks typically require current proof of income (pay stubs from the last three months; for self-employed individuals, tax returns and financial statements from the last two to three years), a list of existing assets and liabilities, and a household budget. The household budget compares monthly income with expenses. The remaining surplus must be sufficient to cover the loan payments on a long-term basis. Since the introduction of the Residential Property Credit Directive in 2016, banks have been legally required to assess creditworthiness with particular care and ensure that the borrower can repay the loan even if their life circumstances change.

Improving Creditworthiness

Those who wish to specifically improve their credit score before applying for financing have several options. First, we recommend requesting a free SCHUFA self-report and checking for incorrect entries-incorrect or outdated negative entries can be corrected. In addition, consolidating existing small loans and canceling unused credit cards and checking accounts has a positive effect on your credit score. A higher down payment-in the industry, 20 to 30 percent of the purchase price is considered solid-not only reduces the risk for the bank but also typically leads to better interest rates. Regular income from permanent employment further strengthens creditworthiness.

Banks’ Scoring Models

In addition to the SCHUFA score, banks use their own internal scoring models. These take into account additional factors such as housing history (homeowners are considered more stable than renters), industry and employer (systemically important professions are often rated higher than cyclical industries), age and remaining years of employment until retirement, as well as the amount and composition of the equity capital used. Equity from home savings contracts or assets transferred from one’s parents’ home is often rated more favorably than savings accumulated over a short period. Some banks also weigh household management-the ratio of income to expenses in bank statements from the past three months-as an indirect indicator of payment discipline.

Practical Tip for Nuremberg and Franconia

In the Nuremberg metropolitan region, we observe that many buyers underestimate-or overestimate-their creditworthiness. Before we submit a concrete purchase offer for a property in Nuremberg, Fürth, or Erlangen, we recommend obtaining a non-binding financing confirmation from your primary bank or an independent financial advisor. This confirmation not only shows how much of a loan is realistically possible but also signals to the seller that you are serious and ready to buy.

Especially in sought-after locations such as Nuremberg’s Südstadt, the Johannisstraße district in St. Johannis, or the university districts of Erlangen, having a financing confirmation on hand can provide a decisive advantage over competitors-particularly when multiple prospective buyers are bidding on a property at the same time. We are happy to assist our clients in assessing their financial options and, upon request, connect them with experienced financing partners in the region who, in addition to traditional banks, also include network partners and direct banks offering attractive terms.

Frequently Asked Questions

How do I find out my SCHUFA score?

Every consumer has the right to request a free copy of their data from SCHUFA once a year. This so-called data copy, pursuant to Art. 15 GDPR, contains all stored data and the current base score. We recommend obtaining this information at least three months before a planned financing application so that any errors can be corrected in a timely manner.

What equity ratio do banks expect for a mortgage?

Most banks expect the borrower to cover at least the incidental purchase costs (real estate transfer tax, notary, real estate agent-in Bavaria, these total around 9 to 12 percent of the purchase price) from their own funds. An equity ratio of 20 percent of the purchase price or more generally leads to significantly better interest rates and increases the likelihood of loan approval.

Can self-employed individuals finance a property?

Yes, self-employed individuals and freelancers can also obtain a mortgage. However, the credit check is more extensive: Banks typically require tax assessments and income statements or balance sheets from the last two to three years. A stable or rising income and a history of self-employment of at least three years significantly improve the chances.

How long do negative SCHUFA entries remain on record?

Negative entries are deleted after varying periods: Data on loans is typically deleted three years after full repayment. Entries regarding payment defaults (e.g., enforceable claims) also remain on record for three years after the debt is settled. Insolvency entries remain on record for six years after the conclusion of the proceedings. Anyone planning to apply for financing should therefore check early on whether all entries in the SCHUFA are correct and whether entries eligible for deletion have already been removed-incorrect entries can be corrected by filing an informal objection with the SCHUFA.

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