A home loan cannot be obtained overnight. Indeed, it is important to be able to determine the monthly payments, rates, etc. Before you start your real estate purchase plan, you need to know your borrowing capacity. This allows you to identify your debt ratio and determine the amount to borrow.
Why check your borrowing capacity
To go through the stages of a real estate purchase without problem, it is recommended to anticipate the different possibilities. You must thus be able to estimate with precision the amount of the monthly repayments, the overall effective rate (APR), the overall cost of the loan, etc. In order to determine your real estate budget and so the type of good that you will be able to buy, you need to simulate different amounts of credit. There are mortgage loan simulators that allow you to check your borrowing capacity free. Borrowing capacity consists of checking its ability to borrow money (logic), but above all to repay it: it is the final sum of money that you can ask a bank or another credit institution for a mortgage loan. It will condition your ability to obtain this loan, and therefore, to be able to buy the property. Obviously, this is not the only criterion that will be taken into account, however, it will make it possible to know the amount to borrow and the possible rates.
It is the remainder to live that will determine the amount of your monthly repayment installments and the duration of your mortgage. To grant a loan, banking establishments will pay particular attention to this amount, the amount you have left after deduction of all your expenses. It also results in a debt ratio expressed in% which must not exceed 33%.
How to calculate the price of a loan
To calculate your borrowing capacity, we subtract your fixed costs from your fixed income. The formula is simple: borrowing capacity = your income - your fixed charges. Of course, calculating your borrowing capacity is not that simple. Hence the interest of borrowing capacity calculators. This depends on several criteria:
- the amount of personal contribution
- the debt ratio
- the type of loan
- the repayment term
- the amount of monthly payments
- current credits
- the age and state of health of the borrower
- their management habits (healthy finances)
- its assets, etc.
When calculating your real estate budget, you must take care to take into account the notary fees and agency fees: they are generally not part of the loan. Likewise, you should take into account the amount of compulsory borrower insurance, not included in the loan offers offered. Its price can be high depending on your age and state of health. Therefore, use a borrowing capacity simulator that takes these criteria into account and compare borrower insurance to find a cheaper one. Finally, check the prepayment penalties. Depending on your situation, you may need to pay off your loan faster, but it can cost you money.
You will thus have the total cost of a loan, on the one hand your borrowing capacity and on the other the final price that you will pay to have this sum loaned to you.