This is THE question to ask yourself once you feel ready to embark on a real estate purchase project. Indeed, it’s better to know how much you can borrow before scouring real estate listings – and risking disappointment when you learn that no, you don’t have the budget for that beautiful 180 m² millstone house on the banks of the Seine. So, how can you properly estimate your borrowing capacity and get started? We’ll tell you everything.
What exactly is borrowing capacity?
If you’ve ever read a Pretto article, you know that borrowing capacity (or “capa,” for short) is a crucial factor. Indeed, this basic information is essential for properly planning your real estate project. As with any purchase, it’s important to know in advance how much you can allocate. And in the context of a real estate purchase, how much you can borrow.
Borrowing capacity is the maximum amount that can be borrowed from the bank . It takes into account several parameters, starting with your income, the duration of the loan, the interest rates and the debt ratio . And it is not fixed, which is why at Pretto, as elsewhere, it is advisable to simulate it so that the estimate is as up-to-date as possible.
How much can I borrow with my salary?
There are several possible scenarios. If you’re a permanent employee, this is the simplest calculation: simply refer to your last pay slip from December and look at the total net taxable income at the bottom.
Are you on a fixed-term contract ? It’s getting a bit more complicated, but nothing is impossible! If you’re in the public sector and have three years of seniority, you’re good to go. In the private sector, it’s the same; it’s income stability that counts, and having three years of unemployment-free experience reassures banks. If you’re buying as a couple and at least one of you has a permanent contract, that makes things much easier.
Business owner , self-employed, temporary worker? Here too, it’s the same rule, you must be able to prove 3 years of regular salary. As you will have understood, banks don’t like to take risks and the first job is to reassure them about your income.
To go further: Income taken into account for a property loan
Afterwards, we’re not telling you anything new if we tell you that a bigger salary = a bigger capacity. Moreover, when we talk about the “best profiles”, we’re often referring to borrowers with a salary greater than or equal to 80,000 euros per year (to which banks will tend to offer a lower rate). BUT salary isn’t everything and there are other levers to play on to know how much you can borrow.
Find all the information you need to become a homeowner. We’ll explain in detail every step of a property purchase.
How does the contribution affect my borrowing capacity?
It’s often said that if you want to win over your banker and land that mortgage you’ve been wanting, you’d better be able to put a deposit on the table. The rule is to have at least a 10% deposit . And when we say “at least,” it’s because banks like to have guarantees and make sure that you’ve prepared your project in advance and therefore put down a deposit.
Except that of course, when you consider a property valued at 300,000 euros , that’s a pretty penny. Perhaps you’ve been planning ahead for a long time, saving diligently for several years in a product such as a Livret A, a PEL or a CEL. Or perhaps you can benefit from a helping hand and a family donation to boost your contribution (luckily, it was recently exempted under certain conditions ).
You can also include all expenses in your loan (including notary fees) and borrow up to 110%. This is not what banks prefer, but it is possible, especially if you have an attractive profile: good income (why not scalable), good account management, etc.
Be aware that the contribution has several impacts on borrowing capacity. As we saw above, it is firstly a reassurance factor for the bank . Secondly, the contribution affects the amount you wish to borrow. If you want to buy a property for 300,000 euros but you can already pay part of it, this mechanically reduces the amount of the credit . Thirdly, a solid contribution can help you negotiate a more advantageous rate (and therefore reduce the total cost of the credit).
To find out how much to borrow with a deposit, take a look at our complete simulator which will help