Financing your primary, secondary or rental home remains one of the biggest investments of a lifetime. Whether in the Paris region or in the provinces, in the new or in the old, it is regularly necessary to have recourse to a mortgage in order to obtain it. This is why, it is important to have carried out a thorough study of your project before getting involved financially.
This is the reason why we decided to give you our advice in order to understand how to finance your real estate. But first of all, it is important to know your maximum debt capacity.
Know your maximum debt capacity
First of all, it is indeed important to know the maximum budget not to be exceeded. Therefore, we advise you to contact a broker, in order to know your maximum debt capacity based on your income. The maximum debt capacity amounts to 33% of your total income, excluding insurance. That is to say that all of your expenses must not exceed 33% of your income.
The other part of the income will be considered as the remainder to live, that is to say the amount that you will have left each month to feed, go out, live eventually. From then on, the concept of living remains will be different for someone whose monthly net income is 1,700 USD with 2 children and for a single person who earns 4,000 USD per month. Thus, banks can be more accommodating with the profile of the latter.
How to finance your rental residence?
The acquisition of a rental residence does not offer the same possibilities as for the purchase of your main residence. It is in most cases a tax exemption tool and is subject to a lot of attention from banks. There are for example certain situations to avoid because they will make banks cautious:
- Invest while you are staying for free: Sometimes, some banks will charge you a fictitious rent, in case you become a tenant in the future.
- Invest while you are a tenant: because in this case, your debt capacity will already be reduced by your rent.
The ideal is therefore to be a homeowner to start building a rental property because it will facilitate the processing of your file vis-à-vis the banks, who will be reassured to know that you have a property heritage that serves as collateral.
If rental investment is guided by the fact that the monthly payments are covered by the rents received, this type of investment can have a significant impact on the calculation of your debt ratio. Indeed, the banks will take into account the expected rental income, which will allow you to bear a higher monthly payment. However, these revenues will be weighted at 70%, so as to limit the risk in the event of an overestimation.