What is the amount that one can borrow according to his income and his situation, here is a simple calculation method allowing to know with precision the amount that one can borrow.
In the context of a real estate purchase, a question comes up systematically in each head of a borrower, how much can I really borrow given my situation? It is possible to respond easily with your own resources, without having to apply for a mortgage from a bank or on a comparative site for mortgage loan offers.
Real estate project: how much can I borrow?
You should know that the bank advisor will immediately calculate the debt ratio of a borrower and then his ability to borrow, as well as understand this calculation and perform it yourself. You cannot borrow more than 33% of your income, so the borrowing capacity corresponds to the salary divided by 33%.
Take an example, Mr. Dupont receives an income of $ 1,500 net per month, he can reimburse a maximum monthly payment of $ 495 (1500X33 / 100). On the other hand, if he already has credits in progress, he will have to subtract the amount of the monthly payments in progress (including revolving credits) and only then he will have the final monthly payment. For example, if he already reimburses monthly payments up to $ 150, he will have $ 345 left to spend on a monthly mortgage loan.
How much can I borrow: the repayment period
The duration of repayment plays an important role since it makes it possible to define the total amount that a borrower can support within the framework of a mortgage. Let’s take the example of Mr. Dupont who has a monthly borrowing capacity of 345 dollars, he can over the following periods borrow the associated sums:
- 10 years (120 months): 41,400 dollars (345 X 120)
- 12 years (144 months): 49,680 dollars (345 X 144)
- 15 years (180 months): 62,100 dollars (345 X 180)
- 20 years (240 months): 82,800 dollars (345 X 240)
- 25 years (300 months): 103,500 dollars (345 X 300)
- 30 years (360 months): 124,200 dollars (345 X 360)
The total amount that Mr. Dupont can borrow thus corresponds to the ceiling amount, it must then include the total cost of the credit, that is to say, the rate, the administration fees, and the warranty fees. The choice of duration will, therefore, be made on the need expressed by the borrower but also according to his ability to repay. Some homes set for example a maximum monthly payment not to be exceeded, in this specific case the bank will articulate an offer according to this monthly payment and will adjust the duration accordingly.
How much should you ideally borrow?
Each situation is specific, each situation is therefore approached in a different way. The borrowers all have different incomes and charges, which can influence the assessment of borrowing capacity, it is for this sole reason that it is strongly advised to use a simulated mortgage, simply to allow all these elements to be taken into account automatically and to be able to propose an adapted repayment plan.
There is a maximum debt ratio not to be exceeded, which presents itself as a first limit in borrowing a household. But there is also the rest for living, important information which simply constitutes the remaining amount on the bank account after deduction of all the recurrent costs of the household (food, electricity, rent …).
Finally, the ability to borrow will also depend on the personal situation (young couple, single borrower, senior household, retired…) and the project (purchase in the old, construction of a new house, purchase of an apartment, house in renovating, purchase of a building, loft…).