Real estate credit: what is your debt capacity?

Before looking at the classifieds, it is better to know your budget. And to determine its real estate purchasing power, two elements must be taken into account: the personal contribution and the amount likely to be borrowed from the bank. Another concept is examined by the bank: the rest to live. Review of details.

The personal contribution

In the jargon of the bank, the “personal contribution” represents the available money that a future buyer plans to inject into the financing of the coveted property. This sum is constituted in various ways. It can come from personal savings (PEL, CEL, others), from an amount recovered from employee savings (Company Savings Plan or collective PER), from a family loan, from a donation or even from a heritage. These different sources can be combined to inflate this contribution.

The share of this self-financing in the total amount of the purchase counts for the lending bank. Because the higher it is, the less the debt will be heavy or/and long. As soon as the sum contributed reaches 20% of the amount, the interest rate offered is likely to be reduced. “For a higher intake of 30%, 40% or more, this elasticity will be less strong. This means that the rate cut will be less significant,” said Pierre Chapon, founder of Pretto.

Namely: currently, most banks require a minimum personal contribution of 10% intended to cover the settlement of transfer duties commonly called “notary fees” and guarantee fees (deposit, mortgage).

The new grant rules

For any credit request, it is necessary to respect the new granting rules in force since January 1st in all French banks. At the request of the High Council for Financial Stability (HSCF), the debt ratio (sources of income/acquisition price) may not exceed 35% (borrower insurance included) with a credit period limited to 25 years for the purchase of an old property and 27 years for a new property.

The banks still have some leeway. Indeed, 20% of their files can come out of this ratio but the acquisition must then concern a main residence. “However, there is no way for an individual to know in advance whether or not his file will appear in this quota of derogations”, specifies Pierre Chapon president and co-founder of Pretto.

To find out what you can borrow, just consult the various websites offering simulation tools. These results will be used to set a budget and the debt capacity will then be refined with the banker and/or broker.

This debt ratio is calculated on the basis of household cash inflows and outflows:

– Sources of income: these relate to net salaries (or even the 13th month or a bonus when the collection is regular) and/or net income plus rental income (some banks weight them at 80 or 90%), the collection of a compensatory benefit, alimony, a regular allowance (retirement, handicapped, invalidity, etc.).

– Expenses: they include the future monthly payment of the mortgage and also all the other monthly payments already in progress (loan for consumption, car, personal loan, real estate), rents (garage…) and the payment of a pension maintenance or a compensatory allowance.

The “rest to live”

This element is examined with a magnifying glass by the future establishment. The “remainder to live” allows the bank to assess how much the candidate borrower will have left after having paid his monthly loan payment. This balance must be sufficient to pay for everyday expenses, insurance, leisure and other expenses (subscriptions, transport costs, etc.). If this “rest to live” turns out to be too tight to live decently, the bank will refuse the loan or will offer to grant a smaller envelope.

On the other hand, if this “rest to live” proves to be comfortable due to high incomes, there will, in principle, be no obstacle to obtaining the loan. “This notion of “remainder to live” is quite subjective. Each bank sets its “house” criteria. Some rely on a minimum need of 1,000 euros per month for a couple and add 400 to 500 euros per child, “explains Romain Bonny, in charge of legal studies at ANIL. “In this period of inflation where many items of expenditure are increasing (petrol, gas, fuel oil, foodstuffs, etc.), the amount of the “rest to live” risks being analyzed more during the examination of a file” , points out Cécile Roquelaure, Director of Loan Studies.

About the author


Leave a Comment