You’re thinking of buying a property, congratulations ! It’s a secure and transferable investment. Your budget for this purchase will obviously depend on your contribution, but also on your borrowing capacity; this is the first necessary step before starting any visits.
How do you negotiate your loan?
Remember that in France, all the loans cannot exceed 33.33% or 1/3 of your net monthly income. The higher the contribution, the more the interest rate offered by the bank will be favourable. It can vary from plus or minus 2 points according to the amount of the contribution. It is sometimes possible, depending on the quality of the file, for the bank to derogate from the strict 33% rule and grant a loan whose monthly payments correspond to 40% of your income. This is negotiable, so don’t hesitate to assert your seniority and your solvency.
In order to get your loan, you can contact your bank directly or approach a mortgage broker. A mortgage broker’s remuneration is calculated as a percentage of the loan amount, it has the advantage of trading large volumes of credits and can often get better rates or conditions.
Indeed, in order to examine a loan agreement, banks will ask you to provide:
Proof of identity
Proof of income:
Your last 3 pay slips, or other proof of income (pension, annuity, etc.), Sworn statement of your income and/or assets in your currency, proof of ownership or existing property income (title or notarised certificate mentioning the price or property tax)
Last tax notice, December pay slip
Account statements from other institutions from the last 3 months for proof of your personal contribution.
Feel free to demonstrate your solvency by providing as much information as possible about your integrity. The banker is more likely to grant a loan if he/she is convinced of your ability to repay it.
Don’t forget that at French Touch, we have solutions to offer and our address book is at your disposal!
Death and disability insurance is mandatory for any subscription to a mortgage loan.
This means that if the borrower dies, the insurance company reimburses the bank the outstanding capital. It should be noted that over the age of 60 years, insurance policy membership costs more.
Unemployment insurance is optional, it is intended for employees on permanent contracts for at least 6 months who are over 25 and under 55 years of age. This insurance, which can cover up to 26 months of monthly payments, does not apply in case of resignation, dismissal for serious misconduct, retirement or breach of contract following serious illness or disability.
When negotiating your loan, beware of unfair clauses; although it is often accepted, a bank cannot require you to domicile your income in its institution.
You should also be wary of early repayment clauses. If you sell your property before the end of the loan, the bank may charge prepayment penalties on the amount of capital outstanding. This rate is negotiated at the time of conclusion of the agreement.
Several repayment systems are possible, this is studied from the start:
You can choose fixed monthly payments for the duration of the loan. Everything is known in advance, it’s a guaranteed security. However, you can’t vary the rate or adjust your monthly payments. This is known as a fixed-rate loan.
If you prefer to vary the amount of the instalments, by decreasing or increasing the repayment term, then an adjustable fixed-rate loan, might be better suited to your needs. As it’s more flexible, this kind of contract can be a bit more expensive.
You can also opt for a variable rate loan. This contract is less expensive to purchase and the interest rate is significantly lower than a fixed rate because it is indexed to the cost of short-term money. If the rate is scalable upwards and downwards, it remains capped at a negotiated threshold. You can also choose to fix your rate after a few years.
In-fine credit involves repaying only the interest for the duration of the loan, with the capital being repaid at the end. This is a way of borrowing that is appreciated by rental investors because the borrower places his/her personal contribution in a “capitalisation bond” which grows during the term of the loan to represent a sufficient amount to repay the capital at the end of the loan. This is interesting as the loan interest can be deducted for tax purposes.
If you’re already an owner and you want the purchase and resale of a property to coincide, a bridge loan, can help you, by making available all or part of the personal contribution necessary for the purchase of a new home, which is repayable through the proceeds of the sale of the first home. You can then pair your bridge loan with a long-term loan.
A bridge loan never exceeds 3 years.
In return for the loan from the bank, you agree to repay your monthly payments and to use the funds to purchase property. The bank may request a mortgage as collateral; this means that in case of a payment default, the bank can seize the property and sell it.
A surety company (“the housing loan”) can also be used to replace the borrower in case of default of payment and then turned against him/her.
The bank is then sure of recovering the money, without having to manage litigation. This has a cost for the borrower, but it makes it possible to reschedule the debt or sell personally rather than through an auction, as well as saving the registration fees at the mortgage office.