Your creditworthiness is a prerequisite for receiving real estate financing. How does your credit rating affect your chances of getting a mortgage? You will find out in this article.
When it comes to mortgage lending, creditworthiness is proof of the extent to which you can repay the building loan to the bank. This solvency is also generally known as creditworthiness. The better your creditworthiness is with real estate financing, the higher your chances of getting a mortgage.
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. Here are other factors that affect your chances of getting a mortgage.
1. Income and wealth
To show the bank that you can repay the real estate loan, you must provide detailed evidence of your income and financial circumstances. This includes salary statements for the last six months, pensions, and tenancy income. Existing assets in the form of stocks or real estate also impact the creditworthiness of mortgage lending.
Low-income earners, for whom a low monthly rate is already a drain on their budget, may find it more difficult to obtain home finance because of their poor creditworthiness.
2. Your age
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 securing a low-interest rate if you are married or in a partnership. Then you can score with two incomes. If you are single but have a well-paid job and a proper credit history, mortgage lending is usually not a problem.
The number of children also impacts your creditworthiness when buying a house. Children cost money that you then lack to repay the mortgage. Therefore, as the number of dependent children increases, so can the difficulty of obtaining mortgage lending.
4. Employment relationship
The profession and the industry in which you work is other 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 irregular incomes. The bank therefore often requires proof of wages and salaries for the past years. Can you show that regular orders can also be expected in the future?
The length of employment with your employer is also important. The longer you’ve been employed, the higher your chances of getting a loan. 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.
5. Equity
Equity is an essential building block for your financing. Not only does it positively affect your home financing creditworthiness, but it also increases your prospect of low mortgage rates. The more equity you bring with you, the higher your chances of getting a cheap mortgage.
At least the additional costs, which can amount to up to 15 percent of the purchase price, should be paid out of pocket. Those who can bring in more equity lower the financing risk and increase their creditworthiness with the bank.
Location can also affect the chances of getting a mortgage. Properties in a favorable location are more likely to be financed than a house needing renovation in a structurally weak area. All of these factors flow into the market value of the property.