Banks place particular importance on the profile of the borrower. Better loan conditions will be granted to the borrowers with the least risk for the lending institutions. The evaluation of a good borrower profile is done through different criteria.
The personal contribution
It is necessary to maximize your personal contribution in order to optimize your borrower profile. A minimum contribution of 10% is usually required to cover the additional costs. The personal contribution is a good way to prove to the bank his personal commitment in the project. This also reflects the savings capacity and therefore the effort made by the borrower for several years to invest in his property. Banks appreciate a personal contribution of between 20% and 30% of the project amount and present the best rate conditions for this type of financing.
It will, therefore, be necessary to ensure that the proportion of funding is not too high. This is the share of the loan granted compared to the total cost of the operation excluding notary and guarantee fees. The amount of funding can be reduced by increasing the amount of personal contribution.
First-time homebuyers are generally asked to contribute more personal income than for second-time buyers.
The debt ratio
The debt ratio must meet a simple rule: all borrower’s monthly loan payments (consumer credit, renewable and also future home loan) must not exceed 33% of the total amount of his income. The debt ratio must, therefore, be minimized to optimize its borrower profile. This threshold makes it possible to preserve, for the borrower, a sufficient reminder to live. The remainder to live, also called family quotient, represents the sum that remains to the borrower after payment of all its monthly payments of credits and its fixed charges (rent, taxes,…). It must not be too weak so that the borrower can pay his charges and live normally.
For high incomes, the debt ratio may be slightly higher than 33% since the remainder will remain high despite a significant monthly payment.
A stable professional situation
The main fear of lending institutions is the non-repayment of monthly loan payments. Real estate loans are made over long periods (up to 25 or 30 years) and the professional future of borrowers may seem uncertain. That is why, a borrower employed for several years in a company, which is in good financial health, will reassure the banks. Borrowers on fixed-term or temporary contracts also have access to real estate loans, while banks will be more sensitive to other criteria.
Good banking behavior
The bank accounts of the borrower must not have any anomalies in order to have an optimized borrower profile. Repeated bank overdrafts are a bad sign to give to the bank and reflect a difficulty in managing finances. Banks aim to minimize their risk and therefore look for “good payers” borrowers. A bank overdraft does not mean that the borrower will not pay his monthly payments, but it will make the banks cautious.
A coherent acquisition project
The type of property, its price and location will also be the criteria of choice for the bank. A well deemed easy to resell will reassure the lending institutions.
To know: The less risk the bank takes, the better the credit conditions will be. Submit your application online, an expert The Central Financing recontact you and accompany you in the search for the best financing.