If you are looking for a property to buy, you have probably already faced the famous maximum debt ratio of 33%. A multitude of received ideas revolves around the latter.
Good news: the maximum debt ratio of 33% is not a legal rule. Fixed by banking practices, it is not a strict and systematic criterion. We will see in this article that it is possible to borrow beyond.
The debt ratio, one indicator among others
The debt ratio is the ratio between monthly finance charges and disposable income. It is a very useful indicator for banks to know whether or not you are a serious candidate for credit but it is not the only one.
When the banks receive a funding request, they study the whole file. In the same way that a low debt ratio does not guarantee acceptance of your file, a rate above 33% is not unacceptable. Each case is unique and the banks examine the files individually. Other criteria weigh just as much as the debt ratio in the balance. It’s the case :
- the profile of the borrower and his project,
- savings capacity,
- of his account management
- or even of its remainder to live and jump of the load.
Profile of the borrower and his project
Although there is not really a typical profile of the ideal borrower, a stable personal situation and a coherent acquisition are major criteria when obtaining a mortgage. Thus, your age, that of your co-borrower (if you borrow two) and your respective professional activities will weigh heavily in the balance.
Also, do not lose your credibility by presenting an overly ambitious project beyond your capabilities or an overly adventurous project. For example, if you buy in the old one, it is good to plan a budget for possible work. You can use the Pretto online mortgage simulator to quickly get an idea of the feasibility of your project.
Savings capacity and account management
Are you able to save every month? In the eyes of the bank, you are able to respect your monthly payments. Indeed, the presence of savings, even if you do not wish to use it for the contribution, will play in your favor during the analysis of your file.
On the contrary, the presence of repeated cash worries on your statements can lead banks to refuse to grant you a loan, even with a low debt ratio.
Keep in mind that you will have to present your latest account statements to the bank. Avoid bank overdrafts in the months before your request!
The rest to live and the jump of charges
Other important criteria: the rest to live and the jump of loads.
The rest to live in the disposable income after the payment of your expenses. By charges, we mean the rent, your mortgage, your consumer credits, your alimony (if applicable), etc.
The jump in charges, meanwhile, is the difference between:
- the amount of your old rent
- the monthly payments of your future mortgage.
By studying these two criteria together, the bank seeks to find out whether you are able to both repay your loan and continue to have correct purchasing power.
For example, you have a jump of charges of 400 $. The bank will try to find out if you are able to live decently without this 400 $. That is to say, are you able to assume this larger amount financially.
Please note, a low debt ratio does not guarantee acceptance of your application
If your file is not accepted by the bank even though your debt ratio is less than 33%, the problem is elsewhere. In fact, it is most likely in the jump of charges or in your account management.
Indeed, a significant jump in charges can be a reason for refusing to grant mortgage loans. For example, a borrower who has not paid rent for several years and who, despite this, has failed to build savings will be judged by the bank as a risky borrower.
Likewise, a borrower who is subject to withholding wages or who has unpaid debts is not a serious candidate.
Beyond the examples, we advise you to call on a real estate broker who will offer you a solution adapted to your situation.
How to lower your debt ratio?
If all the elements that constitute your file are not sufficient to convince the bank to grant you a loan with a debt ratio higher than 33%, all you have to do is try to bring it down to an acceptable level.
There are several possibilities for this:
- extend the term of your loan,
- settle your current credits, even if it means reducing your contribution,
- consolidate your home loans, consumer loans, and personal debts into a single bank loan. This operation will lengthen the repayment period resulting in a reduction in your monthly payments.
Before trying to lower your debt ratio, start by negotiating your mortgage well. Getting a loan on the best terms guarantees you get the lowest monthly payments. For this, you can call on a mortgage broker 100% online and free like Pretto.