The debt ratio is important in the context of a real estate project, the higher it will be and the more the capacity to borrow will be reduced, various solutions make it possible to buy real estate according to the indebtedness of the borrower.
The principle of indebtedness to buy real estate
To borrow from banks as part of a real estate project, it is essential to go through the box of borrowing capacity, it is simply the feasibility study based on the financial situation of the borrower. The bank will then study the income and expenses of the home, including the analysis of credits in progress. Life is project, which we will finance through savings or credits. The more loans are in progress and the more the ability to repay a monthly mortgage payment will be reduced, this capacity is measured with the debt ratio.
The debt ratio corresponds to the proportion of monthly loan payments on the household’s income.
In France, the financial authorities consider that the limit of indebtedness is 33%, a third of the income can be spent on the repayment of one or more debts. Naturally, it is necessary to have a debt compatible with a real estate project, having between 10% and 20% of debt ratio can make the project feasible but the amount that can be obtained will be reduced. There is therefore a first home loan simulation to be carried out in order to check if the targeted real estate can be bought in the current situation. If the mortgage loan can not be put in place, it is advisable to use a loan consolidation operation to reduce the current monthly payments.
Between mortgage and credit consolidation
To work on indebtedness, the borrower has two possibilities: increase his income (borrow with a co-borrower, accumulate a second job, etc …) or reduce his expenses. It is easier to reduce expenses rather than increase income, especially since the income must be long-term and regular to be taken into account. The idea is to propose to the borrower to consolidate his credits to reduce his monthly payments and thus reduce his monthly debt ratio. The debt remains in place because the debt is simply spread to accommodate a month of mortgage lending larger. This makes it possible to avoid too long repayment periods but especially to validate a real estate financing project because the borrower can reduce its debt by several points.
It still has to continue to repay its debts, but the conditions are reviewed under the new credit agreement. In fact, you must first contact a credit institution to ask him to consolidate loans currently in progress, this operation once in place will contact a bank for a real estate project. By applying for a home loan, the bank can see a single reduced monthly payment on bank accounts, with a much lower debt ratio. This operation would have had the effect of facilitating the obtaining, but beware, it must present strong guarantees and especially have a permanent employment contract (type CDI).