The realization of a real estate project involves, for the applicant, to know his borrowing capacity, this in order to have a precise idea of the amount he is able to borrow for good. To determine this capacity, banks use a tool based on the ratio between expenses and recurring revenues. This tool, called the debt ratio, makes it possible to estimate as much as possible the share of the budget dedicated to the repayment of monthly payments of the mortgage loan.
The debt ratio in a nutshell
It is generally accepted that the debt ratio should not exceed 33 %, in order to preserve the financial position of the borrower and not to create a risk of any difficulties in repaying the loan.
Thus, depending on the household debt ratio, and depending on whether the risk is judged or not too high, a mortgage can be refused or granted by the lenders.
In spite of the 33% rule, each institution determines the real estate debt ratio and the borrowing capacity of the applicant according to its own rules.
The reason why a household can be refused a loan by a bank when another will accept his file for the same project.
It should also be noted that banks do not limit their study to the single loan rate of the mortgage, but also analyze the profile of the borrower, namely his professional situation, his family situation, his age, his income, the duration of the loan or the existence of a personal contribution.
The notion of “rest to live”
In this respect, the mortgage debt ratio may vary significantly depending on the resources of the households concerned.
A borrower whose resources allow him to have a comfortable “rest to live” can thus benefit from a slightly higher debt ratio than a household with modest resources.
For information, some incomes are systematically taken into account for the calculation of the debt ratio. These are net wages, including, where applicable, contractual bonuses, non-salaried employment income, maintenance payments made by court order, as well as retirement pensions, disability …
Conversely, taking other income into account is left to the discretion of banking institutions.
These are commissions, family allowances, housing allowances and property income.
On the other hand, exceptional bonuses and other professional allowances are excluded from the calculation of the debt ratio during a mortgage.
To know its borrowing capacity and determine its debt ratio, the following rule should be applied:
debt ratio = total amount of the loan x 100 / net income, some and recurring of the borrower (s)