The borrowing capacity for a mortgage is the percentage of a buyer’s net income that can be used to pay their mortgage, with the corresponding interest, without compromising the economic security of the family nucleus.
The first question that arises when we decide to buy a property is whether or not we will be able to assume the mortgage fee each month as a mandatory fixed expense. This will be the most important expense of a person or family, or one of the most important, significantly reducing their purchasing power.
In general, the total monthly installments to pay a mortgage and other debts should never exceed 40% of the buyer’s monthly net income. For this reason, the mortgage payment (here we explain what fixed or variable mortgages are ) should never reach that 40% of income.
Because if at any time a loan is needed for anything else, we would have no room for maneuver. This same problem could occur if interest rates rose or family expenses increased relative to income.
For all these reasons, it is never recommended that the monthly mortgage payment exceed 30 or 35% of the buyer’s net monthly income. In addition, banks do not usually approve mortgages whose fees represent a higher percentage. However, the maximum recommended percentages of borrowing capacity vary depending on many parameters, such as income level and family responsibilities.
When applying for a mortgage it is very important to be well advised. Gilmar ‘s real estate consultants will put at your service a great experience of more than 35 years in the sector and extensive knowledge so that you make the best decision.
Types of expenses of a family unit
The Bank of Spain recommends that the debt or indebtedness assumed by a family nucleus does not exceed 35% of its total income. The expenses of a family nucleus can be classified into three large blocks:
- Essential expenses: They usually represent 50% and cover basic or essential needs such as spending on food, transportation, miscellaneous expenses (clothes, leisure, sports…) and miscellaneous expenses of the children, if any.
- Indebtedness: Recommended 35% – 40% maximum. They are the set of monthly installments that must be returned for the money borrowed by a financial institution.
- Savings: It represents 15-20% of the total cost. It is always convenient to allocate a part of our monthly income to savings, since it is important to have a financial cushion to be able to face unforeseen events that arise.
Before continuing, let us remember that not only can mortgages be requested to buy a home, but there is also the possibility of going to the bank to request a bank guarantee for rent .
How to measure the capacity of indebtedness for a mortgage
Once we are clear about the above concepts, we can learn how to calculate our borrowing capacity for a mortgage. Usually, and when applying for a mortgage, the buyer goes to the bank without first having found out what his real mortgage debt capacity is. They do not make a study of what their monthly expenses are or what they represent compared to their income.
In this way, you risk requesting the loan without first knowing what part of your budget you can allocate to paying off the debt and what part you need to continue covering your daily expenses. Before applying for a mortgage, it is essential to know exactly what our borrowing capacity is. That is, what we can really pay per month. This information is also very important for the bank before disbursing any loan.
To know what our borrowing capacity is when requesting a mortgage, we have to calculate what the monthly income is, subtract the fixed expenses and multiply the result we obtain by 0.35 or 0.40. Under no circumstances is it recommended to exceed 35% or 40% of monthly income to cover any type of bank loan.
Among the fixed expenses of a person are rent or mortgage credit, food, transportation, education, etc. In addition, there are a series of variable expenses that can also be considered, since they usually occur, such as vacations, leisure or gifts.