Transform the garage into a studio for the older child, redo the kitchen, add a bathroom for the children … The evolution of the family or a new financial ease allow us to consider a work credit for the house. However, this loan works, like any credit, must be repaid. Hence the importance of assessing your borrowing capacity before borrowing $ 5,000.
Evaluate your borrowing capacity for a construction loan, why?
Requirements for a construction-to-permanent loan include a down payment of at least 20 percent of the estimated mortgage. While the home is being built, a homeowner only pays the interest on the outstanding balance. Private lenders may offer construction loans to qualified borrowers with a 5 to 10 percent down payment requirement. Government-backed loans are available with as little as zero down. Construction loans are very short term, generally with a lifespan of one year or less.
Borrowing $ 1,000, or even going as far as borrowing $ 10,000, requires being able to assume the repayment of this loan every month. Especially that a work credit often turns out to be substantial. The lending institution will therefore help the borrower to assess its monthly repayment capacity based on its income and expenses. It is these monthly payments, as well as the desired loan duration, which will determine the amount of credit. The calculation of the borrowing capacity for this works credit is the starting point of the project.
How to calculate your borrowing capacity?
Without being legally regulated, the limit on the debt ratio accepted by financial institutions is 33%. The debt ratio is calculated by making a ratio between the income of the borrower of the loan and the charges or other loans that he must assume. For a person who receives an income of $ 3,000 monthly and who repays a mortgage up to $ 650, the debt ratio is (650/3000) x 100 = 21.67%. He then has a borrowing capacity of 33 – 21.67 = 11.3% of his income, or $ 339. This amount is the key element in assessing the amount allocated to the work.
Also assess your borrowing capacity through a simulation for your cheap work credit.