Are you interested in buying a house in France? Chances are that you will have to apply for a mortgage loan and that’s easier said than done because the bureaucracy gods are regulating this sector incredibly well.
But don’t worry just yet, our member Sebastiano Comis is explaining the process of financing a property in France and more important – is sharing tips how you can successfully apply for a mortgage loan to realise your dream of buying a house in France!
The context and basic principles of financing a property in France
The mortgage loan sector is extremely regulated in France. It’s a long-term engagement for the bank and could carry an important risk. They analyse 3-4 months of your life, to get engaged for many years.
That’s why it takes so long, and it requires a lot of analysis and documents. The decision and controls could need many steps and levels and have to comply with many rules and policies.
Banks have to consider and respect 2 policies:
1. Risk: they have to perform a protocol called KYC that means “know your customer” that force them to get to know deeply who they are dealing with and their current revenue and wealth situation. In addition, they have to evaluate the solvency of the broker, and to do that they calculate a lot of financial ratios, most of them made mandatory by the regulation.
2. Profitability: They have a sales and profit strategy and the have to evaluate if the mortgage candidate will fit into this. Because the mortgage loan isn’t a goal on itself for the banks, because in most cases they don’t have enough profit margin on it. So, what they really want is a long-term relationship.
In other words: a bank will finance you if they believe you will stay with them for long time and you will subscribe to additional services like the loan insurance, the house insurance, the credit card, and maybe some investment products. The more services or products you are subscribing the better for them.
How to calculate how much you can borrow
The key rule is to determine what are the stable revenues of the candidate in ratio to the loan. A general rule of thumb is a maximum of 35% debt-to-income ratio.
This is the ceiling that the new loan monthly payment, insurance included, plus the other monthly charges (other loans, rents, child or ex-spouse support…) cannot exceed. So, to summarise; revenues, charges, interest rate level, insurance cost and the desired duration would determine how much you can borrow.
A mortgage calculation example
Your monthly net revenues are 4000€ per month and your current charges for rent, other loans etc are 400€ per month.
The monthly maximum loan payment, insurance included, is 35% of 4000€ = 1400€ minus your charges of 400€ = 1000€ maximum loan payment per month.
Assuming an interest rate of 1.5% and insurance cost of 0.36%, you will be able to qualify for a 20-year mortgage loan of 195.000€ or 25-year mortgage loan for 232.000€.
What things will be taken into consideration when applying for a mortgage loan in France
Banks, and therefore any middle men, will need a lot of personal information in order to determine the risks of lending you the money. Every financing project is personal but the steps and things that will be taken into consideration are always very similar. Take a look at the list below to understand how banks look at you and your financing project.
1. Your personal status
If you are a physical person or a company the conditions are not the same. For companies it’s more complexed and it need more documents and analysis, that will not be treated in this article.
If you are a fiscal resident: banks can finance 100% of the property price. For the initial fees, notary, mortgage fee, guarantee fee you have to cover it with your cash contribution (around 10% of the property price). Toady it is rare, but sometimes possible, to finance more than 100% of the property price.
If you are not a fiscal resident: banks in average, can finance up to 70% of the property price. So, you have to cover with your cash contribution the 30% left, plus the 10% of notary and initial fees costs. In addition to this some banks ask also as a collateral, like a portfolio investment.
If you have ongoing legal procedures, like a divorce, banks will wait until the matter has been defined (in most cases and especially if as a marriage you have a wealth community).
If you are a foreigner: you might need a valid, long term, French visa or similar, to buy your property in France, to set your main residence.
If you are an employee: In most cases, without a fixed long-term contract, it will not be possible to borrow. The qualify revenue will be calculated based on your tax return, last 3 pay slips, and your work contract.
If you are an independent/entrepreneur: Banks will calculate the average of your revenues over the past 3 years and apply eventually also a risk percentage over it to lower the average.
They will evaluate the solidity of your company and its recent revenues trend. Banks will ask your personal and company tax return and proof of revenue.
Ongoing loans, split payments, child or spouse support, eventual rents, of all the borrowers will be taken into consideration and reduce your maximum ability to loan.
Banks are obliged by the law to get a clear vision of your current wealth status and the value of your investments. This will include your real estate portfolio, cash reserves, investments in stocks, crypto currencies and basically anything of value.
Of course, the more you own the lower your risk profile is for the bank and therefore your chances of getting a loan approved will increase.
Ultimately to pass this category, you would have to justify that you can pay the upfront costs for your project – this is typically 10% of the purchase price of the house and covers notary fees, taxes, real estate agent commission, bank commission and so on.
5. Banking situation
Banks need your last 3 statements of all your accounts. This is to verify and determine what has been declared such as revenues and charges, to analyse your spending behavior, and to find potential risks of not being able to pay off your debt.
You need to have a defined project and banks will need a notary or real estate document called “compromis de vente” or “promesse de vente” and literally translated it’s called a promise to buy. The compromis de vente is a formal agreement between you and the seller, in which you will express your intention to buy the property from the seller under the agreed conditions. Banks can find all the information they need in this agreement about the seller, buyer, property, timeline, price and conditions.
In France to guarantee the banks you can have a privileged right over the property you are buying (mortgage or similar), but in most cases banks will ask special companies to guarantee for you, in exchange for a fee.
The good thing about this for the bank is that if you (the borrower) don’t pay your monthly charges for whatever reason, this company will cover for the bank and chase you for paying of your debt.
At a later stage it will replace the bank in its rights to proceed against the borrower. Every bank works with one of these insurance/guarantor companies.
8. Market conditions
The rules to respect to get financed and the interest rates can change anytime. So, some periods can be cheaper or easier than others.
How to maximise your chances to get financed
In order to maximise your chances there are some things that you can do and especially avoid. Such as having huge debt, having unsettled lawsuits or a gambling problem. Take a look at the list below for some tips to help you increase your chances on successfully applying for a mortgage loan.
- Maximise your savings, before asking for a mortgage
- Limit or avoid having other loans or charges (leasing, split payments…).
- Gather all the documents needed
- Be totally clear and up to date with your taxes and tax return
- Reduce debt and avoid problems with paying off your credit card debt, no open invoices from providers or something similar
- Wait until you have 3 years of financial history / activity, if you are an entrepreneur and self-employed
- If you are in the middle of a divorce procedure, wait until the end and have come to an agreement
- Avoid gambling games, casinos, online poker and so on this can be considered a potential risk
- Buy something within your financial capacity. If you can find something below your maximum loan capacity, you will have a higher chance of getting your mortgage loan approved
- If you are an employee: the minimum condition is to have completed the trial period. And the longer you work for a company, the safer it is perceived by the banks.
What’s a credit broker and what can they do for you
A credit broker is a professional that has the same skills and knowledge of the bank’s counterpart, who can negotiate for you your mortgage with the banks and look for the best conditions.
Why should you hire a credit broker
Market conditions awareness: interest rates change, some banks are better for some type of projects than others, banks workload and rules can change. The broker knows for a specific set (project, borrowers’ conditions, specific time) what are the best banks for.
Best mortgage conditions: the interest rates are already negotiated with most banks. In addition to that the broker can negotiate more on interest rate, borrower insurance rate, mortgage fee, guarantee type.
Support and explanations: the broker is normally easier to reach, during the project timeline, can coordinate all the project and can explain things that banks are not willing to say.
Time savings: the broker can be the only contact person for the borrowers. But it will negotiate with many banks at the same time for his client and let the concurrence play its game.
Loan specialist and advice: if some changes must happen, before the project can be done or if an atypical loan is needed, the credit broker could advice on that. Better than a bank employee, who can propose only what his bank can do.
The broker is paid after, and only if, the mortgage application is successful.
1. Financing capacity definition: Ahead of a project, ask to your bank or credit broker how much you can borrow and the overall feasibility of your project (remind one thing: if you ask to your bank before the credit broker, you will lose the possibility to benefit of the broker negotiated conditions with your bank. The opposite is not true: if you ask to the broker before, you could end up in your bank with the best conditions).
2. Look for the property you want to buy and sign a preliminary contract.
3. Begin the mortgage application: in one or many banks, with a credit broker or on your own.
4. Give all the documents requested to the banks or the broker.
5. Choose your bank, if you have multiple positive proposals.
6. File your application for the borrower insurance.
7. Open the new bank account.
8. Receive the mortgage contract and send it to the notary.
9. Keep it at least 10 days, from the reception, before to sign it.
10. Sign the mortgage contract.
11. Go to the signature appointment, with the seller and the notary.
Congratulations you are now a real estate owner in France!
The mortgage loan sector is extremely regulated but this is for your own financial safety and protection. It’s absolutely achievable to successfully apply for a mortgage and buy a house in France. Even with foreign income.
Feel free to contact me if you have any questions, I’m here to help and answer your questions because I know how difficult it can be to understand all of this – especially if you’re not a native French speaker (or reader).
And as mentioned earlier, if you decide to work with a credit broker like me – you only pay if the mortgage application is successful!