What Is the First Step?
What’s the very first thing you should do before buying a property in Germany? You’ll find many sources saying different things and pointing you in various directions. Here’s my opinion based on my experiences.
The Risk Assessment Process
In other countries like Canada or the USA, you go to the bank, get a mortgage pre-approval to know what you can afford, and with that rough sum in mind, you start looking for the ideal property. Germany is quite different in this scenario. A bank might easily give you a €500,000 loan for an apartment in central Berlin, while denying you a €300,000 loan for a modern house in the suburbs of Frankfurt. Why? It’s because of their risk assessment process. An apartment in Berlin could, in the hypothetical case of your default, be sold immediately. A house in the suburbs would stay on their books much longer. This is a factor that people with experience in other countries, especially Canada or the USA, aren’t used to.
Schufa - A Risk Factor
Another risk factor in the eyes of a bank is your Schufa score.
Before you even talk to banks or start looking for apartments, you should check your Schufa. This was a mistake I made.
Before I tell you about my odyssey, let’s start from the beginning.
Schufa is Germany’s largest credit agency, operating as a private institution that collects and manages credit-related information about individuals.
Its main function is to assess creditworthiness by compiling data on individuals’ financial behavior,
including loan repayments, credit card usage, and other financial obligations.
Imagine you want to buy a mattress and decide to pay by invoice after receiving it,
instead of using a credit card or PayPal at the time of order. Well, that goes into your Schufa record.
Or imagine you move a few times within a city in just a few years. All those new addresses get recorded in your Schufa,
and you’re then flagged as risky because you seem too transient and thus less trustworthy.
In a phone call with Schufa, as I tried to figure out why every bank was rejecting my application, I learned
that I was simply living on the wrong street. Imagine moving to a neighborhood where the people around you
have, on average, poor Schufa scores. Well, that affects you too, because to some extent, you’re lumped into the same pool.
My Personal Experiences with Schufa
I already mentioned the wrong street example, but sadly, that wasn’t the only reason banks rejected my application.
In 2019, I started looking for my first apartment in Berlin. I found the perfect place in Charlottenburg. I was 100% convinced
I’d get a loan for a €420,000 apartment. Unfortunately, I was wrong. Even though I had almost half the value in cash and
a mid-six-figure income, I was deemed too risky in the eyes of the banks. 28 years old, unmarried, no kids,
and employed at my company for just over 12 months. There was no way they’d give me a loan. Why?
Because of my Schufa score. The fact that I had applied for loans at three different banks had further worsened my score.
When I moved to Germany, I bought a few things on invoice. I moved a couple of times in Munich and a couple of times in Berlin. Especially
in Berlin, I lived in a building where the address was something like 28/30 XXXX Street. And since it’s two numbers separated by a slash,
those count as two separate entries in the Schufa record. That means: BAD.
So, Back to the Original Question: What’s the Very First Step You Should Take Before Buying a Property?
Get your Schufa report. Make sure not to get the short version, the Schufa-BonitätsCheck,
which you can find, for example, on ImmoScout24.
The comprehensive, detailed version you get from the official Schufa website is called the Schufa-BonitätsAuskunft, sent by mail.
Once you receive it, check all the addresses you’ve been registered at. Verify that all the information is correct. If there are duplicates,
contact them to have them removed. If there’s incorrect information, let them know. These changes will take effect in the next quarter.
From that point, you can spend the next three months observing the market and planning what’s important to you when buying a property.
My Advice
Understanding Schufa is essential for anyone living in Germany or planning to live there, as it plays a central role in accessing financial services and opportunities. By familiarizing yourself with how Schufa works and taking steps to responsibly manage your creditworthiness, you can ensure your financial affairs remain in good standing and enjoy the benefits of a positive credit history.
Before you waste time and money and emotionally invest in an apartment you simply won’t get – check your Schufa score and, if necessary, correct or optimize it. Then you can find your dream property.