Borrowing capacity basics

Borrowing capacity refers to the maximum amount a bank is willing to lend to an individual, based on their income and expenses. It determines the maximum monthly payment and, therefore, the total mortgage loan amount.

French regulations on borrowing

In France, the High Council for Financial Stability (HCSF) has set a limit of 35% of net income (including insurance) since January 2022, with some exceptions allowed by banks for certain profiles. This means that loan repayments should not exceed this percentage of a person's net income.

Factors influencing borrowing capacity

The calculation of borrowing capacity is not limited to a simple multiplication. Banks consider various criteria, including income sources like net salaries, rental incomes, pensions, or recurring bonuses, as well as existing expenses such as current credits, child support, and other fixed costs.

The role of the debt ratio

The debt ratio is the ratio between monthly expenses (including credit) and income. This ratio shows the share of income used to repay debts. If it exceeds 35%, obtaining a loan becomes nearly impossible, except for specific cases allowed by the HCSF, such as for main residences or first-time buyers.

Impact of loan term on borrowing

The loan term significantly affects borrowing capacity. A longer term results in lower monthly installments, allowing for a larger loan but with higher total interest over time. In contrast, a shorter term reduces the overall cost but limits the amount accessible. In France, the maximum loan duration is generally around 25 years, sometimes 27 years for new purchases.

Importance of personal contribution

A personal contribution reduces the amount to be borrowed, which in turn lowers the monthly installment. It also reassures the bank about the borrower’s financial stability and savings capacity. A contribution covering at least the notary fees (10%) is often preferred by banks.

Other influencing factors

Additional factors such as professional stability, the borrower’s age, absence of banking incidents, and account management in the months before applying also influence borrowing capacity. These are why banks carefully review all aspects of a borrower’s financial profile.

Examples of borrowing capacity calculations

Concrete examples show that a net monthly salary of 2,000 euros with a 10,000 euro personal contribution over 20 years results in an estimated loan amount of approximately 130,000 euros. A net monthly salary of 3,000 euros with a 20,000 euro contribution over 25 years results in approximately 225,000 euros. These amounts vary based on actual interest rates, insurance costs, and existing expenses.

Using online simulators

Using an online simulator to estimate borrowing capacity involves gathering data like net monthly salary, current fixed expenses, and available personal contribution. Enter the desired loan term, adjust the interest rate, include insurance costs, and compare different scenarios to see the impact of various parameters on the loan amount and total cost.

Tips for optimizing borrowing capacity

To optimize borrowing capacity, individuals should reduce existing consumer credits, increase their personal contribution, stabilize their professional situation, compare offers from multiple banks, and manage their bank accounts carefully in the months leading up to the application.

Common mistakes to avoid

Common mistakes during the simulation include forgetting to include insurance in the installment calculation, underestimating additional fees, not accounting for existing expenses, using an outdated or overly optimistic interest rate, neglecting the impact of the loan term on total cost, and relying on a single simulation without comparing multiple scenarios or institutions.