French Mortgages
French Mortgages.
Not surprisingly we need to borrow some money to finance purchasing a house in France. I used ChatGpt to understand the process and it actually recommended a site https://www.francehomefinance.com/
We completed their on-line form requesting a quote for a mortgage, quite quickly, IE the next day which is quick it seems for France, we received a reply asking for some more information and then we arranged a follow up phone call.
I have to say that the lady we spoke to was helpful and explained things very well. The sales process around making an offer, getting a CDV and then having 2 months to finalise a mortgage offer was already quite clear from information that the house broker had sent, but it was good to get it explained again by someone else.
Then they explained that mortgages for non residents of France have slightly different conditions, but none seemed to bad and some seemed an improvement on my previous mortgage experiences.
Loan Conditions
Loan to Value (LTV) ratio
LTV is important, as it is in the UK from my past mortgage experience. LTV should be maximum 85% and we should be coming in at no more than 60%.
Debt Ratio
Banks like to ensure that you can afford whatever loan is offered. Very sensible, do you remember the 2008 financial crisis triggered by sub prime mortgages?
Debt ratio must be under 35%. It is calculated as % of total income used to pay all out standing debts. We don’t currently have any other mortgage but our car loan does need to be considered. Again we come in with a healthy ratio here too.
Minimum Loan.
The initial mortgage broker has a minimum loan of 250,000 Euros. I guess anything smaller makes their fees to low. I have no idea if this is true of other brokers or when applying to banks directly.
Broker fees
If you are using a mortgage broker then their fees are a percentage of the loan amount. we were quoted 1.5% but I am waiting to speak to a 2nd broker to see what they offer too. Broker fees are invoiced after the sale is completed and not included in the loan. In the UK when I had used a broker for my first mortgae, fees had been included in the loan amount, so it was good to get that clarified.
Where as in the UK, I had arranged my last few mortgages directly with the banks by doing my own research. When arranging a mortgage in France I am more than happy to pay a specialist broker to help. Our french is not up to the job and we gain from their experience. Money well spent I think.
Loan Period
French banks like to ensure that the loan is paid off before age 75. This was quite refreshing to discover. In Luxembourg loans have to be paid off before retirement age, so I had been basing my calculations on a maximum of 10 year loan period. Now an 18 year loan could be possible!
Interest Rates
Interest rate also vary based on duration of the loan. I was quoted today as possible being able to get 4.1% for a loan over 15 years duration and 3.95% for a loan of shorter duration. Again this improved my financial estimates. Online I had seen 4.3% suggested as a rate for non resident borrowers and had done preliminary budgetting based off that.
Interest Rate Period
It is worth noting that the interest rate quoted was a fixed rate for the duration of the loan. For someone from the UK this is amazing, in the UK I had never been able to get a fixed rate loan for more than 5 years. This is very sensible as it provides much more security than being exposed to varying interest rates.
Property Location
It seems that the french banks consider the location of the property when assessing their risk. I was told that they especially look at how rural the location is and nearer towns is good. We are not looking at too rural and am looking in popular locations so we do not expect a problem with that.
Property Technical Certification
I may not have the corret terminology for this yet, but we were told that it is important to consider the technical rating of property being purchased. We have seen this on information provided for some of the properties that we are considering. Recent French law requires property to have energy efficiency ratings on a scale of A-G.
I checked and some of the places that we are considering are rated D. We were told that D is good, C is excellent, A & B are never seen, E is normal, F is a problem where some work may be necessary and G is bad. The banks care because property can not be rented if with a rating lower than E and also if work is required then that is a financial consideration.
Mortgage Approval
No formal mortgage application can be submitted or approved until the actual property is selected and an offer formally accepted buy the vendor. IE the CDV is issued. I think that I am going to have to write about CDV and the contract process in another blog.
Sometimes a vendor may request to see a mortgage pre-approval. They want to be sure that the buyer will be able to actually buy and is not wasting their time.
Our broker said that pre approval is virtually impossible to get, but if requested they could draft a “kind of pre approval” letter indicating their confidance in our ability to obtain the required mortgage.
Once we have a CDV then we can make a formal mortgage application. The broker will send us the list of qualifying documentation needed to support the financial details that we already shared and then an appliction will be made to the selected bank.
Insurance
It seems that life insurance tied to a mortgage is not compulsory in France. This was a surprise as in the UK mortgages must always have accompanying life insurance policies. Atleast that was my experience. Because we have a pre-existing medical condition some banks may require life insurance. However there are still some that do not. Personally I would prefer to take out life insurance anyway. It provides security for both lender and borrower.
Saving Money On Budget Estimates
When checking that we could really afford to buy one of the amazing looking houses which we keep being sent details of, I had prepared a budget.
As I said above, I had assumed the online rate of 4.3% and a loan period of 10 years. It is always good to make a safe budget.
With all the advice received ,we can adjust our calculation for a loan period of 15 years and an interest rate of 3.95%.
These new factors potentially reduce our monthly commitment by up to 800 Euro per month!
If think that alone makes it worth using a broker.
What Next?
On the mortgae front, nothing happens now until we have an offer accepted on a property. At that time obtaining a mortgage will become critical to moving any sale forward.
