What is the borrowing capacity?
The borrowing capacity is determined according to recurring expenses and perennial incomes of the borrower, in order to define the number of monthly payments to repay for the mortgage. It is thus admitted that the debt ratio, or the monthly payments, must not exceed 33% of the applicant’s income. an elucidation on http://cocinaconcarmen.com
Moreover, in addition to the monthly payments to be repaid, the banks also take into account any other consumer loans in progress, as well as the daily management of the budget.
They can thus have a clear idea of the capacity to assume the repayment of a mortgage.
For example, a household applying for a home loan and already having a current consumer credit will have less borrowing capacity for its purchase project; the monthly payments of this credit decreasing the borrowing capacity.
Remains to live and management
On the other hand, banks also study the notion of “rest to live” , or the resources available to the borrower once the monthly payments are repaid. This means that a household with comfortable resources will generally be able to benefit from the indulgence of the banks and a threshold of flexibility regarding the debt ratio of 33%; the risk being lower for the bank compared to a household with more modest incomes.
The borrowing capacity, although it is the subject of a detailed study by the banking institutions and is based on a precise calculation method, is nevertheless closely linked to the way in which the applicant manages.
In any case, banks will always be more willing to put their trust in a modest household with some ability to save and spend reasonably than to a household with comfortable incomes that is flippant with money.
Borrowing capacity: calculation method
To know its borrowing capacity, it is, therefore, necessary to take into account its regular income (wages, industrial profits, commercial and non-commercial or agricultural), alimony, family allowances where applicable, investment income, dividends … and expenses they are also regular (loans in progress, pensions, monthly payments …). In other words :
Borrowing capacity: expenses x 100 / income
As a reminder, the result must be less than or equal to 33% in order to have enough leftover living and not risk too much debt, synonymous for banks risk of non-repayment.