Construction financing despite a negative SCHUFA entry – is something like this even possible?
Most people understandably assume that a borrower usually has to have the highest possible credit rating in order to receive mortgage lending from the bank. If you have debts, current loans or even problems with the SCHUFA, you will most likely be denied such a building loan. However, this is a misconception, because although a negative SCHUFA entry and the associated poor creditworthiness can lead to problems, not all banks automatically reject the loan application. On the one hand, this is due to the fact that not all entries in the protection association for general credit protection (SCHUFA for short) are up-to-date or actually correct. On the other hand, the bank often only rejects the mortgage application directly if the potential borrower has committed serious violations or other misconduct in the past.
Construction financing with a negative SCHUFA entry? How exactly does it all work?
Before we go into more detail on the question of how construction financing is possible despite a negative SCHUFA entry, it should be said in advance that the protection association for general credit protection is a so-called private credit agency whose main purpose is to inform its contractual partners about the creditworthiness (also called creditworthiness) of third parties. According to SCHUFA, the data has so far been collected from around 80 percent of all German citizens, which is then made available to banks and various other companies, among others. Each consumer is assigned a so-called score value, which is between 1 and 100. And the lower this value, the higher the probability of default of the person concerned.
For a negative SCHUFA entry to come about, it is often enough if you do not pay the bill, ignore reminders for too long, miss installment payments or other problems arise when repaying a loan. Incidentally, this SCHUFA entry remains even after all open invoices have been paid – for a total of three years. Unfortunately, there are always incorrect entries, mix-ups or forgotten deletions of outdated data. It is therefore advisable to check your own SCHUFA entry for any errors before you apply for construction financing at the bank. Incidentally, this inspection is possible once a year free of charge. And if incorrect or outdated entries are discovered during the check, you can request a correction to improve your score and restore your creditworthiness.
What options are there to obtain construction financing despite negative SCHUFA?
If there are complications when checking creditworthiness (e.g. due to a negative SCHUFA score), the borrower will be informed by the bank and can then comment on it. But even if it is actually a legitimate entry, the borrower still has the opportunity to receive mortgage lending. To do this, he can either propose a guarantor who is considered by the bank to be sufficiently solvent to financially cushion any complications in the repayment of the real estate loan – or name a second borrower who has no negative SCHUFA entries and, ideally, also over has a certain amount of equity (e.g. the spouse).
Furthermore, construction financing can be approved despite a negative SCHUFA entry if the borrower can prove a high level of equity (e.g. in the case of an upcoming inheritance) and also a secure income (permanent permanent position). In addition, the borrower could also take out a loan from a foreign bank, since the SCHUFA score does not play such a crucial role in many other countries. However, as a rule, not only are the interest rates significantly higher than at a German bank, the constantly fluctuating exchange rate of foreign currencies and other economic problems can also lead to unforeseen complications. Therefore, you should think carefully about whether such a high building loan from a foreign bank is actually a good idea.
What are the potential consequences of building financing with a negative SCHUFA entry?
If the bank actually enables the borrower to obtain construction financing despite a negative SCHUFA entry, the future homeowner must expect significantly higher construction interest. Interest surcharges of three percent and more are not uncommon, as the bank protects itself from possible losses and potential defaults in this way. On the other hand, the house or condominium must be a so-called valuable property. If, for example, the single or multi-family house is dilapidated or the condominium you want is in a bad location, the bank can refuse construction financing without further ado. Likewise, a certain equity of at least 20 or ideally 30 percent of the total purchase price should be available so that the borrower can minimize his own financial risk. And since, in the worst case, there is a risk of personal bankruptcy if something goes wrong with the financing or the repayment of the loan, you should think very carefully about whether such a risk is actually worthwhile.