Mortgage borrowing capacity is an important factor in obtaining a mortgage. These data make it possible to know the maximum amount that can be borrowed and therefore to be able to carry out projects more easily. However, it is possible to increase this lending capacity. We will see it in detail in this article.
What is a home loan?
A home loan is a loan intended for the acquisition of real estate.
It can be used to finance the construction, purchase or renovation of a house or apartment, or even repair and development work. This type of credit is mainly intended for people who intend to build their main residence or who wish to purchase a property to make it their main residence.
The duration of the loan generally varies between 5 and 30 years.
The repayment is made in constant monthly installments over a fixed period, with compound interest (understand that it will be calculated on the interest already paid). Furthermore, the loan amount is defined at the time of signing the contract.
It cannot therefore be changed later.
When you call a lender to finance your real estate project, they will ask you for various documents to be able to come up with an offer suitable for your situation:
- A copy of both sides of the identity document
- Proof of address
- Your last three paychecks
- The last 3 reports
The different types of home loans
The different types of home mortgage: The amortizable mortgage allows the customer to defer the repayment of principal and interest over a specified period. This type of loan is particularly suitable for people who have a fixed budget for the purchase, because they can thus stagger the payment in several installments.
It also allows families with a fixed income at the end of the month, or a variable income, but with a debt ratio of less than 33%, to acquire properties more easily. On the other hand, it is generally granted to customers who are unable to meet the full purchase price at once.
The loan is ultimately a mortgage loan intended to finance the acquisition of a property. This form of loan offers the customer the option to repay the borrowed principal as the interest is paid by the borrower to his bank account.
However, it should be noted that this type of credit often involves significant costs linked in particular to the insurance and other guarantees owed by the banks in order to guarantee the repayment of the borrowed capital. Finally, there is also the transitional loan which can be used to finance the purchase before the sale of an apartment or a current house.
What are the criteria for increasing debt capacity?
Calculating the loan capacity is an important step for a borrower.
It allows you to evaluate your creditworthiness and then select the offers suitable for your profile. To increase your borrowing capacity, you need to be able to generate sufficient income.
The bank will also take into account the maximum debt ratio authorized by law (33%). If this threshold is not reached, the loan will not be granted.
The calculation of the debt capacity requires the consideration of various criteria:
- The professional situation: salary, seniority, professions exercised
- Expenses relating to the purchase of real estate: notary fees, total credit costs
- Existing debts, which can be incurred when buying real estate
The role of the mortgage broker
With lower interest rates, borrowers are more likely to succeed in their real estate project. However, in order to access the best possible rate and thus obtain a low-rate mortgage, it is important to contact a mortgage broker. How come ? A broker will help you find the best deal for your project.
It will make a comparative study of the offers on the market and negotiate the best possible conditions for you. By going through a mortgage broker, you increase your chances of getting a mortgage at the best possible rate. In fact, thanks to his privileged contacts with banks and financial organizations, he will be able to find the solution that best suits your profile. Furthermore, his job also consists in advising his customers so that they can independently choose the offer that best suits their needs.
Real estate loan simulation, an essential tool
The simulation of the real estate loan is an indispensable tool for anyone wishing to buy or invest in real estate. This operation consists in comparing the different rates offered by the banks and getting an idea of the budget that will have to be allocated for the financing of your project.
The simulator also allows you to determine the most appropriate monthly payment, taking into account the available budget, fixed charges and other factors related to the mortgage.
It is therefore a very useful tool for those who want to invest in the real estate sector.
The simulation can be carried out for free on the internet, without obligation and without the need to provide bank details. A comparator will also allow you to find the best possible rate based on the conditions that you can put in place: duration of the loan, amount borrowed, desired monthly payment … Furthermore, it is important to know that the simulation does not guarantee obtaining the real estate loan required. To get a good result, you also need to consider taking into account additional costs such as tuition fees or borrower insurance. If this is not done correctly, it can result in a significant increase in the total cost of the mortgage.
Home loan offers, how to compare them?
In order to be able to borrow for the purchase of real estate, it is necessary to make a calculation of the borrowing capacity. This approach consists of evaluating the amount you can dedicate to the loan repayment, depending on the amount of monthly income you have.
Your borrowing capacity will also be affected by the other credits (car loan or personal loan) you have taken out, as well as the maximum debt ratio authorized by the bank. As a general rule, your maximum borrowing capacity is 33% of your monthly net income. If your debt ratio exceeds this limit, it will then be possible to request an increase in the amount of your loan from the bank that grants you the loan. Before granting a mortgage, banks are likely to want to obtain guarantees such as death insurance or even disability insurance so that they can be sure that the customer will always be able to repay the loan if necessary.
Help to increase your lending capacity
To increase its lending capacity, you can use different devices.
In particular, you can benefit from a subsidized loan, such as the deliberate loan, the zero-interest loan or even personalized housing assistance. This aid is subject to certain conditions and requires the completion of a dossier with the relevant financial bodies. Depending on the type of residence affected by your request, you will be able to benefit from financial assistance that will allow you to reduce the monthly installment you will pay each month. This relief will be proportional to the amount of the loan granted: the greater it will be, the lower the monthly payments. For example, if your income is modest and your project is a new acquisition, the state can grant a PTZ (Zero Rate Loan) of up to 40% of the total mortgage amount.
Please note that this page also contains comprehensive information on how banks determine the creditworthiness or leverage of a potential borrower to determine their eligibility for financial assistance available to purchase real estate.
Pitfalls to avoid in order to increase your debt capacity
When investing in real estate, it is important to pay attention to several things.
Here are the main pitfalls to avoid in order to increase your lending capacity.
The first trap is underestimating the value of your property.
The first thing you will need to do is compare the price per m² in your geographic area with the current market prices. If your estimates are too low, your bank will not be willing to lend you as much as you want and / or will not be able to guarantee that loan.
Your debt ratio plays a major role in your bank or lender’s final decision. In fact, if this rate is higher than the standards accepted by these financial institutions, they may be reluctant to grant a mortgage. Furthermore, if the repayment amount exceeds that of the monthly annuity, the financial situation is difficult and the granting of the credit is therefore not insured.
You must know that a borrower who has a good practice can always get a mortgage without the need for a personal contribution and without resorting to social assistance thanks to the purchase or consolidation of mortgages!
The real estate debt capacity is a data that allows you to know the maximum amount that can be borrowed for a real estate loan. This amount corresponds to the sum that can be requested from the bank without having to pay penalties. The calculation of this lending capacity requires various elements and in particular information on the personal situation of the applicant.