Before you start contacting an agency to begin the process of finding a property, you must define your borrowing capacity. This is indeed an important element for obtaining a mortgage, allowing in particular to define the amount that you can borrow for the realization of your project. It also allows you to define the monthly payment of the loan that you can take out.
In principle, the monthly repayment capacity is fixed from a debt ratio of 35%. Note that not all banks consider the same elements to define a customer’s borrowing capacity. Indeed, the borrowing capacity can vary according to the interpretation of the remainder to live, the rental and financial income by a banking establishment. This is why the simulation of borrowing capacity on the internet is a good alternative. Indeed, the estimate that you will obtain will vary only according to the duration of the mortgage.
To calculate borrowing capacity, the formula is as follows:
Borrowing capacity = [(Your income – your monthly expenses) x 35] / 100
Note that it is possible to improve your borrowing capacity. Indeed, it can increase thanks to a grouping of credits. If you have credits in progress, you can consolidate them to improve your financial situation thanks to a single and new credit, with a longer repayment period.
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Of course, it is also very important to calculate the monthly payments. Indeed, a mortgage necessarily has a cost, resulting in an interest rate. The idea is to reduce the real estate rate as much as possible.
To have the interest rate of a mortgage, it is necessary to take into account 3 elements, namely:
Note that a low mortgage rate does not mean that you will have the best mortgage. Indeed, the price of the mortgage will also be influenced by its duration. Having lower monthly payments over a long repayment period will allow you to better manage your monthly budget. However, this scheme will definitely cost you more in total. You must therefore find the right balance, that is to say a bearable monthly payment, but over a shorter repayment period.
It is possible to use a simulator and an online comparator to more accurately define the monthly payments implied by a given offer.
You should also try to estimate the notary fees involved in the purchase of your property. As a reminder, they correspond to the sums that you will pay to the notary. Whether you plan to buy new or not, you must always pay notary fees since the deed of sale of real estate is a notarial deed. That is to say that the signing of the authentic deed must be carried out before the notary.
As part of a real estate sale, notary fees are made up of:
As you will have understood, only part of the notary fees go to this professional. In general, only 10 to 15% of the costs will go to him. The rest is made up of taxes in favor of the State and local authorities.
In principle, it is the personal contribution of a borrower that will be used to pay the various ancillary costs, including notary fees. However, if you do not have one, you can request financing that covers the cost of these various costs involved in signing the deed of sale.
To estimate notary fees, note that they vary according to the price of the property and whether it is new or old. Indeed, a new home will save you money since the notary fees to be paid are reduced compared to those involved in the purchase of a home in the old one.
For new property, notary fees generally vary between 2% and 4% of the purchase price. On the other hand, in the old one, they will vary between 7% to 8%.
You can use an online calculator to estimate notary fees and thus better prepare your budget. It is also data that allows you to compare the different proposals made by your real estate agent.
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The debt ratio refers to the maximum amount that a borrower should devote to repaying a loan. This is the sum not to be exceeded if he wants to continue to live properly.
This is an important indicator for banks, particularly in the study of a credit application. In practice, by carrying out the feasibility study of a home loan, a financing organization will determine this rate according to the specific parameters and the situation of the borrower.
This is an important point in the context of a home loan which involves a very long repayment period, extending over many years. You have to make sure that you can live normally despite your mortgages, and above all to repay your monthly payments without difficulty.
To obtain the debt ratio, the formula is as follows:
Debt ratio = amount of credits and fixed charges x 100 / income
To take a concrete example, imagine that the amount of the monthly loan payment is €500 for a household whose monthly income is €2,500. The calculation of the debt ratio is as follows: 500 x 100 / 2500 = 20%. This borrower’s debt ratio is 20% and it is very likely that he will have no trouble repaying his loan.
Note that no law defines a maximum debt ratio. On the other hand, the High Council for Financial Stability establishes recommendations on the subject, which it reviews periodically. According to the latest recommendations, the maximum debt ratio is set at 35% of the borrower’s income. Beyond this 35%, it is very likely that the borrower will encounter difficulties in meeting loan maturities and maintaining a comfortable lifestyle.
