In the UK, the rule of thumb is that you can borrow between four and five times your gross income, with a little flexibility based on any additional financial commitments. In France, they set a limit of 33% of gross salary or income to cover all expenses relating to a property, including social charges, electricity, gas, water, etc. It is interesting to note that in France property prices are much cheaper (excluding major cities) than in the UK or U.S., in part because it is harder to borrow substantial sums of money. Of course, all the above generally relates to those of you who are looking to borrow money as your only means of affording a steel-frame ADU. A little later on, we will also briefly cover borrowing for investors and existing property owners. We should add at this stage that the value of the ADU you propose building will also have a big influence on the amount of money you can borrow. The good news is that there are specialist lenders who understand how to correctly value an ADU before it has even been built, as not all lenders are yet aware of steel- frame construction and the many benefits that come with it. Establish how much you can afford to borrow Now here is where you need to be careful. We live in a society where it is relatively easy to borrow money, and lots of it! The problem is, it is not our money, it belongs to someone else, and over time they will want it back. What you need to do is look carefully at what the future could potentially hold in terms of changes to your situation and how you will be able to mitigate for such changes. In other words, while a bank or lending source may be prepared to give you a loan for a certain amount of money, can you really afford to borrow that much? What are we talking about? First off, interest rates. While you may be able to repay your mortgage while interest rates are at 5%, what happens if they go up by 2 or 3 percentage points and you have a floating rate loan? Do you have enough in reserve to cope with an increase in mortgage payments? Could you cope with a $400 a month increase? We are not suggesting you look at the blackest scenario possible with interest rates doubling, but it makes sense to allow for some movement in interest rates, especially when your entry level is at a low rate.
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