Once your real estate project is successful, the next step is to find a financing solution. One of the key criteria in the preparation of a loan application file concerns the debt ratio. Namely the ratio between the monthly payments of the credit and the total income of the borrower. Back to the unspoken theoretical limit of 33% and its weight in requesting loans from a bank.
Why is the limit set around 33%?
The share of a borrower’s income devoted to repaying their credit is freely set at 33% by the banks: to date, no legal rule sets it in these terms. Beyond this percentage, financial organizations simply believe that the weight of the “remaining to live” is not comfortable enough.
Naturally, this is a theoretical estimate, which is constantly adjusted depending on the case. For example, a household with high incomes, with a high living income, may “push” its investments beyond 35% of the debt. On the other hand, a household with irregular and modest incomes will not be able to take out a loan in debt of more than 30%.
Is the debt ratio a criterion for refusing a mortgage?
Within a lending institution, each request for a mortgage is studied according to its level of risk. However, with a debt ratio above 33%, these organizations believe that the chances of no longer being able to assume your monthly payments are real. On the borrower side, this limit is also a “safeguard” to avoid major financial difficulties.
In the criteria studied by the banks, the debt ratio comes in the second position, after the study of income and your job. With a few exceptions, it should not exceed 30 to 33%. And of course, being registered with the Lite Lender 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% of the debt ratio, all the more, if you do not benefit from high incomes or visibility on the long term of their evolutions.
To limit this rate, it is possible to play on several levers:
– State aid: tax credit, zero-rate loan, etc.
– The repurchase of credits: by lengthening the duration of the loans and by regrouping them, it is possible to obtain less important monthly payments, reducing in fact, your debt ratio.
– Increasing income: 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.
Finally, and last but not least, the weight of the credit negotiation itself to lower your debt ratio. By calling on a qualified professional, like Alceste’s free brokers, you could benefit from better conditions, both in terms of the interest rate and the cost of insurance, which plays a major role in monthly payments.