real estate in Paris

Finding Your Dream Home in Paris Part II: Financing and Signing for Your Property

If you’ve decided to stay in Paris long term, you may become interested in owning rather than renting. In Part One of this two-part series, I outlined how to find your ideal property. 

Now, as you follow your dream of owning a piece of Paris, the next step is to start thinking about financing your new home as well as how to legally sign for it.

Step One: Choose Your Bank

Check out different banks as to their lending rates. You will want to look at their TAEG (Taux annuel effectif global) which includes various fees above and beyond the interest rate and spread over the time of the loan. Sometimes banks announce a low lending rate but then the fees bring up the cost and the TAEG. Have them print out a proposal for a repayment schedule (échéance de prêt) and simply compare the monthly mortgage offers. Remember, only a couple of tens of euros per month can bring up the total cost of the loan into the thousands.

Also, see how comfortable you are working with a particular bank. The bank will ask you to open an account with them and transfer all your banking needs to that account, i.e., income and all regular transfers. For my last acquisition, I was looking into three banks, including BanquePostale. BanquePostale had the best rate. But, when they became very picayunish as to more document demands, I decided I did not want to spend fifteen years of my financial life with them. However, I was able to use their offer to more strongly negotiate with another bank and then got a good deal from a bank I have been happy to work with since then.

Get a potential agreement from a bank(s) to know where they stand on your real-estate project. They will not sign for a loan until you come to them with a notarized pre-sales agreement. However once that is done, you will only have a short time to get the loan processed. The final negotiations with these banks, and your choice of bank, will take place typically within a month after this agreement is in hand.

Banks can be difficult in awarding loans. The budget question concerns not only how much money you already possess, but how much the banks will be willing to lend. There is a law to protect people against accumulating too much debt (loi surendettement). They must check whether you might be overextending yourself and make sure that you do not. If they do not carry out this role, they can become responsible for your loan. The rule of thumb is that the banks will only lend an amount whereby the monthly payments will not go over 30% of your income, preferably salary.

They do not want to lend to those whose incomes are unsure. They are particularly happy to loan to civil servants, as the latter cannot lose their jobs and therefore can necessarily pay off their loan as planned. They also offer loans to those who have a CDI (Contrat de duréee indeterminée, long-term, unending contract), as such a contract means the person is most likely not to lose their job. On the other hand, if you are neither a civil servant nor have a CDI, but only have a CDD (Contrat à durée déterminée, a fixed term contract) or even worse, you have a freelance job, they may not want to lend to you as they fear you might lose your job and then default. These eventualities must be worked out with the bank.

As a case in point, after three years of legal work to get permission to enlarge my house, I lost my job. Among the answers I got to queries for a bank loan, was the memorable, “Madame, come back to us when you find a job.”

Banks get cold feet and do not want to bother with repossessing your property, no matter its worth, no matter the collateral you offer. They would much rather you just pay and not make waves. It might be mentioned, too, that the law of repossession here is different from in the US. If you walk away from a loan, the bank will sell off your property. If they sell it for more than you owe, they will give you the difference. If, on the other hand, they sell it for less, you remain liable for the difference.

Another French banking difficulty is age. I have just learned that banks will only lend up to the time you are 75 years of age. This means, for example, if you need to borrow 100 000€ at age 65, you must be able to pay back the loan within ten years. Considering interest, insurance, bank fees, mortgage fees… etc. I will ballpark a figure of being capable of paying 1000€/month, and this with an income of a minimum of 3000€/month.

The bank will also try to force you into having your loan insured by them, typically at a rather high cost. Legally you can look for other insurance companies to insure your loan. If you feel the bank will refuse the loan if you do not accept their insurance policy, you might want to accept it just to be able to close, and then change your policy after a year. The law protects this right, but the banks do whatever they can to make it difficult.

Step Two: Make Sure The Bank Likes Foreigners

For Americans who might be buying with money being brought over from the United States, it would be good to discuss the question with a financial advisor, both in the US and France. By law, banks report all cash transactions that exceed $10,000 — the international money transfer reporting limit set by the IRS. This means you need to report any large sum you are bringing over both to the IRS and to the French finance ministry.

The question of foreign transfers gets even thornier in the case where the down payment might be a gift from a US parent. For example, a mother might want to gift her only son $100,000. Under US law she is allowed to gift him $15,000 tax-free per year. After that, a tax applies. 

Under French law, she can gift her son up to 100 000 € every fifteen years. In this case, although he must report this gift to the French Finance Ministry, or his tax office, there should be no French tax on the amount. Before transferring any large amount of money from one country to another be sure to get advice from a professional.

If you want a list of banks that like dealing with Americans, the comments section on this article we wrote is constantly being updated with names of banks.

Step Three: Work With a Notaire to Sign Your Real Estate Sales Acquisition

A real-estate sales acquisition must necessarily take place through the services of a notaire (real estate-inheritance lawyer). You must calculate in your budget the sum over and above the price of the property that must be paid in government taxes and notaire’s fees which are commonly combined and called frais de notaire. A good rule of thumb is to count ten percent, although it usually comes to a bit less.

Once you and the seller have agreed to the sale, the first step is to go to a notaire to sign a promesse de vente (pre-sales agreement). Once the purchase is concluded, the buyer becomes tied to the notaire until the property is no longer theirs. For this reason, it is the buyer who chooses the notaire. Get a recommendation; some do their work better than others and there is relatively little difference in the price. Remember this is a relationship that will last for better or for worse until you sell the property or your children inherit.

This agreement will include the agreed-upon price as well as the time-lapse (typically a month) that is allowed for the purchaser to get (or not) a bank loan. It will also state when the sale is to be signed. Make sure there is a clause that states that if no bank offers a loan, the sale is off at no cost to the purchaser. 

When signing the sales agreement the purchaser will leave a down payment for the seller, but the sum will stay in the hands of the notaire until the final sale is signed. The notaire will also issue you a special document to use whereby should you change your mind within seven days, you will not lose your down payment.

Step Four: Finalize The Negotiations

It is now that you will finalize the negotiations with all those banks you had talked with and make your final decision as to whom you will sign with. On my last purchase, I signed the agreement on a Friday, saw one bank that evening, another the next morning, and left for Chicago on Monday. The rest of the negotiations took place by phone (whereby I got one bright, cheerful call at 3am Chicago time!) and email. I made my final decision on my return three weeks later.

While you are getting your loan in order, the seller will be getting a diagnosis of the property including an ecological report, the final number of square meters and a geological report including whether there is/was a quarry under your building or an underground river bed, whether there are termites, various types of pollution, energy efficiency…

Other things to keep in mind as you prepare to buy: 

  • Are you buying alone? 
  • If there are two of you, are you both signing 50/50 or will the condo belong to only one of you? 
  • Who is paying, or are you both paying? 
  • What is the percentage each one is contributing to the purchase? Remember, in case of any separation the condo will be divided according to each person’s contribution as stated in the deed.

It is possible to make the purchase as an inheritance hedge. For example, you can buy in the form of what is called indivision whereby one person, typically a parent or spouse, will have exclusive use of the property (usufruit) and the other will have ownership. In this case, when the usufruitier passes away, the heir will have untaxed, complete ownership of the property.

Finally, with the bank’s agreement, you can set an appointment and return to the notaire’s for the final signature. The notaire will read aloud every bit of information they have gathered including the date of birth of the previous owner, their profession, how they got the condo, e.g. who they bought from, inherited from, or their loan. On my last acquisition, I was stupefied to learn that the owner had only had a seven-year loan to pay for the property. Those were the days!

Step Five: Pay Attention

Be sure you listen attentively to every word, as boring as it might be. There will be the yearly real estate taxes to be divided up. Now that the living tax (taxe d’habitation) has been more or less phased out, there remains taxe foncier. Normally this will be divided on a pro-rata basis, that each owner will pay the percentage of the part of that year that they owned the property. 

At my last signature, in a second week of September, the owner gracefully said she would fully pay for the taxe d’habitation of that year. I accepted the taxe foncier as of the first week of September, although we only signed on the second week, allowing for a simple division of three quarters and one quarter. It was a very pleasant signature process. The surprised notaire told us the story whereby the buyer and seller negotiated the taxes down to exact pennies.

Make sure everything that was said to be included is indeed included in the deed. For example, my ground-floor neighbor in the main building of my condo gets full use of the garden attached to the building up to the fence where my garden begins. Her exclusive use of the garden was not included in what the notaire read out, and she refused to sign until it was added. In another case, there was a mix-up of storage lockers, and the notaire held back 10 000 € until the right locker was emptied and ready for use for the new owners. Know what you are getting into. You can still refuse to sign if there is a problem that you had not been made aware of.

And now, assuming all has gone well and all the parties concerned have signed all the documents, you will simply leave the notaire’s office, keys in hand, the happy owner of a Paris property. And the rest of the story is yours.

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