Once your real estate project is completed, the next step is to find a financing solution. One of the key criteria for setting up a loan application file concerns the debt ratio. Namely the relationship between the monthly loan payments and the total income of the borrower. Return on the tacit theoretical limit of 33% and its weight in a request for credits from a bank.
Why is the limit set at around 33%?
The share of a borrower’s income devoted to the repayment of his credit is freely set at 33% by the banks : to date, no legal rule fixes it in these terms. Beyond this percentage, financial organizations simply consider that the weight of the “remainder to live” is not comfortable enough.
Naturally, this is a theoretical estimate, which is constantly adjusted according to the case . For example, a household with high incomes, with a high living income, will be able to “push” its investments beyond 35% of indebtedness. On the other hand, a household with irregular and modest incomes will not be able to subscribe a credit indebted to more than 30%.
Is the debt ratio a criterion for refusing a mortgage loan?
In a lending institution, each loan application is studied according to its level of risk . However, with a debt ratio higher than 33%, these organizations believe that the chances of not being able to assume your monthly payments are real. Borrower side, this limit is also a “guardrail” to avoid serious financial difficulties.
In the criteria studied by banks, the debt ratio comes second , after the study of income and your job. With a few exceptions, it should not exceed 30 to 33%. And of course, the fact of being stuck at the Bank of France is, in most cases, a reason for refusing to obtain a loan.
How can it be limited?
Ideally, it is even recommended not to exceed 20 to 25% debt ratio , especially if you do not have high incomes, or a long-term visibility of their changes.
To limit this rate, it is possible to play on several levers:
– State aid: tax credit, zero-interest loan, etc.
– Credit redemption: by extending the term of loans and consolidating them, it is possible to obtain less significant monthly payments, effectively reducing your debt ratio.
– Higher incomes : negotiation of a salary increase, sale of objects that have become useless, rental of your car or room …
– The reduction of your current expenses : public transport rather than fuel, telephone subscription, Internet, renegotiation of insurance, etc.