mortgage in France

Focus on Real Estate Loans for Expatriates / Non-Residents in France

Continuing with our theme of investing/putting down roots in France is this guest post about how mortgages here work. -Ed.

An essential financing tool for any real estate project, your loan can be structured in different ways, including:

The “fixed-rate amortizable loan.” This is the most common type of real estate loan in France. The borrowed capital is repaid monthly until the end of the loan term. The monthly installment includes the interest. 

Both French citizens and non-residents tend to prefer fixed interest rates over variable rates. The concept of variable rates is that they will be adjusted based on a reference rate (e.g., the European Central Bank’s ECB rate) every 3 years. Choosing a variable rate requires a bit more analysis of the market situation at the time of subscription. For example, during the period from 2005-2010, when average rates were at 3-4%, it was conceivable that rates could decrease. In contrast, during the period from 2015-2020, with average rates at around 1%, it is reasonable to assume that rates would not go much lower.

Technically, the loan term can be up to 25 years, but the standard is typically 20 years, with an additional 20+2 years for newly built properties. Extending the term helps strike a balance between rent and monthly installments and also reduces the impact of the debt-to-income ratio.

In most cases, the loan term can be renegotiated as early as the second year. The levers for this include making an early repayment with a substantial amount (e.g., 50,000 euros), which allows for the extension of the term and/or adjustment of the installments, or, conversely, after a period of 5-10 years of repayment, extending the loan over a longer period (which automatically lowers the installments). Banks may apply fees, but these are limited to six months’ worth of interest, so it is not a significant obstacle. However, there are nuances, so it’s important to compare several offers before committing.

The “in-fine” loan. This is widely used in neighboring Switzerland and Anglo-Saxon countries, and involves only paying the interest over the loan term and repaying the entire loan at its maturity. This type of financing is suitable for a more experienced audience because technically, you do not own the property! However, this arrangement is very attractive for rental properties where rental income exceeds interest expenses. The duration of this type of loan is generally 10 years and up to 15 years. The interest rates are fixed and higher than those of an amortizable loan (about +0.25%). 

N.B. Even a non-resident of France can think about real estate projects. You have access to the full range of financing options (within your capacity). 

The 6 Financing Steps

  1. Contacting your broker
  2. Signing the brokerage mandate
  3. Collection and analysis of your documents
  4. Submission of the loan application to the banks
  5. Review of offers, negotiation, acceptance of conditions
  6. Issuance of offers and release of funds

How to Get a Mortgage Loan in France?

Getting a mortgage can be a challenge, and it can be even more complex when you are an expat. Financial institutions may be more hesitant to grant a loan when living abroad, but that doesn’t mean it’s impossible. Below are some items the banks will consider.

Financial Stability

Just as for a resident, the bank first examines your financial situation. Since mortgage loans are not very profitable for banks, it is even more important, in their eyes, to ensure that you will be able to repay this loan. Therefore, banks favor borrowers with stable financial situations. For residents on an employement contract, they will pay particular attention to the type of contract and the employer.

It is recommended to contact a broker. The role of a broker is to streamline the procedures for you and to make banks compete in order to obtain the best financing terms. The borrower will have a single point of contact who will handle all correspondence on their behalf.

Brokers are paid on a success basis, meaning a commission is payable after the funds are released at your notary’s office.

Building a Strong Application

As long as eligibility criteria are met, it is advisable to assemble your loan application as quickly as possible. Our “Societe2Courtage” team is at your service. To facilitate the review of the application, many banks may request document translations. The contents of the application may vary according to the bank’s requirements, but it should always include, in as much detail as possible, the following elements:

  • Identity
  • Current address
  • Marital and family status
  • Exact income
  • Current employment contract
  • Financial situation (debt, existing loans, etc.)
  • Status of assets

Required Down Payment

It is also important to expect that loan conditions will be stricter and different from those for residents. 

To ensure they cover their costs, banks may, for example, require an initial down payment representing between 20% and 30% of the property’s value, while a standard loan for a resident usually only requires a down payment equivalent to 10%. 

The maximum debt-to-income ratio of 35% applies even to expatriates. The bank may also require a real guarantee to secure the loan. For example, they may request the establishment of a conventional mortgage on the property in question. 

Finally, the bank may require the applicant to subscribe to another profitable financial product, such as a savings account or life insurance, in exchange for the loan. 

Please be aware of the deadlines and commitments made with the sellers. Expect a 2-3 month timeframe to obtain the issuance of offers.

If you need help getting a loan, feel free to contact us at Loan Brokerage France, we’re here to help!

Photo by Tierra Mallorca on Unsplash

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