The income taken into account by banks to calculate your borrowing capacity

Lending institutions rely on your stable and regular income to assess your creditworthiness. Typically included are:

• your net salaries (excluding exceptional bonuses),

• your existing rental income, often weighted at 70% or 80% to anticipate potential vacancies and management fees,

• your financial income or pensions, if they are recurrent and documented.

  
  

In the context of a rental investment, banks may also consider a portion of expected future rents. Again, they typically apply a discount of 20 to 30% to remain cautious. This allows investors not to have their borrowing capacity completely blocked by the new mortgage, as the property generates income itself.

On the other hand, one-time bonuses, exceptional bonuses, or irregular income (micro-enterprise, freelancing without a solid track record) are rarely included in the calculation as they are deemed too uncertain.

The monthly charges that reduce your borrowing potential

In contrast to income, the bank will examine your financial charges, that is, all the regular expenses that already weigh on your budget. They are essential as they directly reduce your borrowing capacity.

Among these charges, we find:

• The monthly payments of ongoing loans: mortgage, auto loan, student loan, consumer credit…

• Alimony or maintenance payments that you make every month.

• Contractual commitments such as a car lease, a revolving credit, or any other financed subscription.

• Recurring overdrafts or declared personal debts.

These charges are considered unavoidable obligations, as you cannot escape them. Living expenses (rent, energy bills, food, leisure) are not included in the debt ratio calculation, but they indirectly impact the disposable income criterion.

In summary, the higher your financial charges, the lower your borrowing capacity. That is why it is often advised to repay or consolidate certain loans before applying for a mortgage.

The debt ratio: the 35% rule to know

The debt ratio is the keystone of the calculation. It corresponds to the following ratio:

Debt ratio = Financial Charges/Net Income×100

In France, the rule applied by the majority of banks is to not exceed 35%. This means that your loan payments (including new credit) should not represent more than one-third of your income. This limit is a guideline, but some banks may accept a slightly higher ratio if the disposable income is considered comfortable.

Beyond the debt ratio, bank advisors place great importance on disposable income: the amount you have left each month after paying your charges and loans.

For example, a household earning €6,000 per month with a 35% debt ratio will have a disposable income of approximately €3,900, which is comfortable. In contrast, a household earning €2,000 with the same debt ratio will only have €1,300 for all its other expenses, which will be deemed riskier.

Therefore, disposable income allows for an adjusted analysis beyond the simple formula and can make the difference in the acceptance of a file.

Income, charges, debt ratio, and disposable income are the four pillars that determine your borrowing capacity. Mastering these criteria means knowing exactly on what basis the bank will evaluate your real estate project.