If you're looking to buy a house or make a rental investment in France, you're probably wondering how to finance your project. Understanding the process and securing the best loan rate is crucial. Pretto is here to explain how it all works, whether you're a resident of France or living abroad.
What is the real estate market like in France?
France is a nation of homeowners, with 57.7% of households owning their main residence, and about 36% of these households have an outstanding mortgage as of 2022.
What about non-resident buyers? They make up 5.7% of the market. Regardless of your goals, the French real estate market is one of the largest and most stable in the world. If you're investing in rental property, you'll find that rental demand in France is robust, ensuring you can easily find tenants and generate steady rental income.
Moreover, there are significant tax benefits. For instance, foreign property investors can enjoy several tax advantages, including exemption from capital gains tax after 30 years of ownership.
Who can get a mortgage in France?
In France, anyone of legal age and capacity can take out a mortgage, provided they meet certain essential conditions. Whether or not you live in France, you can become a homeowner. However, a few basic criteria must be met:
- Clean record with the Banque de France: You must not be listed in the Banque de France's payment incident file, which tracks individuals who have had trouble repaying loans.
- Stable and sufficient income: To ensure loan repayment, you need a steady income. Your debt ratio— the percentage of your income that goes toward monthly credit payments—should generally not exceed 35%. Self-employed individuals must provide audited accounts for at least three years.
- Down payment: You must have a down payment, which is the amount of money you invest upfront in your real estate project.
Banks are generally more cautious when granting them to non-resident borrowers. They must provide additional documentation, such as proof of their professional and financial situation in their country of origin.
What projects can be financed with a mortgage?
A property loan can be used to finance various types of projects, including:
- Main Residence: The property where you'll live year-round.
- Second Home: A property where you occasionally live: who doesn’t dream of having a vacation home in France?
- Rental Investment: A property purchased to rent out, whether short-term or long-term, furnished or unfurnished. This type of project helps you build real estate assets and prepare for retirement.
Whatever your preferences, you can choose to buy a new or existing property, be it a house, an apartment, or even a block of flats.
What are current mortgage rates?
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How much can you borrow for a French mortgage?
In France, your eligibility for a bank loan depends on your residential status, which significantly influences the lending criteria. Here's how it breaks down:
Loan-to-Value (LTV) Ratios: French banks typically offer LTV ratios ranging from 70% to 85% of the property's value. However, for non-EU or EFTA nationals, this ratio tends to be lower, ranging from 50% to 75%. Conversely, French citizens and permanent residents can access higher LTV ratios, up to 100%, provided they deposit a portion of the loan amount into a designated savings account with a French bank.
Minimum Loan Amounts: Mortgage providers in France usually set minimum loan amounts between €50,000 and €100,000. However, some lenders may impose higher minimums, particularly for non-EU or EFTA nationals.
Which countries are French banks most inclined to lend to?
Borrowers from European Union (EU) and European Economic Area (EEA) countries, as well as from the USA, Switzerland, Canada, Japan, Australia, and New Zealand, are preferred due to their strong financial profiles and low default rates.
American residents are generally considered solid borrowers but face additional regulatory requirements due to agreements like FATCA (Foreign Account Tax Compliance Act), which mandates the disclosure of banking data for US persons with accounts exceeding $500,000 to the US government.
Conversely, individuals residing in tax havens may encounter challenges due to difficulties in verifying banking details and income sources.
Geopolitical factors can impact mortgage eligibility, with some crisis-affected countries temporarily excluded by banks to mitigate risks related to money laundering. The current list of at-risk countries includes Afghanistan, Belarus, Burma/Myanmar, North Korea, Eritrea, Iraq, Iran, Libya, Pakistan, Somalia, Sudan, South Sudan, Syria, Ukraine, Venezuela, and Yemen.
What's the best mortgage term?
Buying a property and deciding on a mortgage term is a common concern, but the right choice depends on your unique situation.
Firstly, consider your financial circumstances. Your loan term should align with your income and expenses to ensure manageable monthly payments. This includes factoring in your downpayment to the purchase.
Secondly, think about your personal objectives. Are you aiming for lower initial monthly payments to maintain financial flexibility? Or are you prioritizing minimizing interest costs with a shorter loan duration?
The specifics of the property also play a role. A higher-priced property may necessitate a larger loan amount, potentially making a longer loan term more suitable for achieving affordable monthly payments.
How much can you contribute to your property financing?
As a non-resident applying for a mortgage in France, it's crucial for banks to ensure your ability to repay, whether it's for your primary residence, a second home, or an investment property.
You'll typically need a 20% downpayment of the property's total price and prove you have an additional 20% set aside in savings. The bank will also assess your existing loan obligations, both in France and globally, and calculate your debt ratio based on your income. In France, the maximum debt ratio typically accepted is 35%.
Furthermore, the bank will evaluate your financial stability, considering factors such as stable employment and consistent income, to determine your eligibility for the loan. This comprehensive assessment helps ensure financial security throughout the mortgage term.
What are the essential requirements for securing a French mortgage?
When you apply for a loan, the bank will request several documents to complete your loan application. Here's what you'll typically need to provide:
- Proof of identity
- Proof of address
- Proof of marital status
- Proof of income
- Employment contract
- Bank statements
- Statement of assets
The bank may require more detailed documentation compared to a resident’s application. For instance, you'll need to provide bank statements that cover a longer period, typically more than a year, whereas a standard application may only require the last 3 months' statements.
If you're purchasing a new property or one that requires renovations, you'll also need to include quotes from French-registered works companies and copies of their insurance.
For planned property improvements, include documents such as the property title or preliminary sales agreement for the land, the building license, and the building contract with plans.
Lastly, if the property will be financed through a mortgage or asset release, include the title deed or deed of loan with a full repayment schedule. These documents ensure the bank has a comprehensive overview of your project and financial situation.
What other costs should you expect when buying in France?
When budgeting for your property purchase in France, it's crucial to consider additional fees and taxes that can significantly impact your overall expenses. These costs typically amount to around 10% of the property price. Here are the key expenses to factor in:
- Notary Fees: These compulsory fees cover taxes and the services of the notary. They vary based on the property price and location and can’t be negotiated. For an existing home, notary fees generally amount to around 7.5% of the property price, while for a new home, they range between 2% and 3% (plus VAT).
- Mortgage Application Fees: Brokerage fees are determined by the value of the property you are buying.
- Other Fees: Additional expenses may include estate agency fees if you engage an agency to find your property (typically between 3% and 5% of the property price).
By factoring in these costs along with the property price, you can better estimate your total expenses and plan your budget effectively for your property purchase in France.
What else can you negotiate when getting a mortgage?
Negotiating your home loan rate is just the beginning—there are several other areas where you can save money. Here's how:
- Loan insurance: Protect yourself against unforeseen events (health problems, accidents) that could impact your ability to repay your mortgage. Ensure you get the best insurance conditions tailored to your profile. At Pretto, we assist you in securing the best rate and insurance.
- Deductible period for renovations or new property: Some banks offer a deductible period of up to three years, during which you only pay interest and insurance installments. Be cautious not to overuse this advantage, as extended periods of paying interest without amortizing your loan can be costly in the long run.
- Exemption from penalties for early repayment: Extend or reduce your loan term without renegotiating the rate. The initial rate remains unchanged, but the installment amount can be adjusted. Paying more (for a shorter period) helps you amortize your loan quickly and reduce interest, while paying less (over a longer period) lowers your debt ratio, freeing up funds for other projects.
- Suspending repayments: Pause mortgage repayments in case of unexpected events or life changes. You can put your mortgage on hold for several months, giving you the flexibility to pursue new ventures or take a break.
Curious about each bank's offerings? At Pretto, we provide transparent information from your first meeting, empowering you to strategize and choose the best options for your needs. With us, there are no surprises—you're in control of your financial decisions.
How can Pretto help you get a mortgage in France?
Discover a new breed of brokerage with Pretto—an innovative 100% online platform that redefines the property buying journey. No matter your project's scope, we've reimagined every step with personalized support and cutting-edge digital tools.
Pretto maintains deep connections with 100 French banks, ensuring we secure the most competitive loan deals across France through expert negotiations.
By choosing Pretto, you delegate the paperwork hassle to us. Our team specializes in projects for non-resident borrowers, mastering all the specific criteria to streamline your loan application. We're fluent in English and offer an English simulator tailored to diverse resident and non-resident needs.
Partnering with a top broker like us unlocks access to the best rates. We decode the banks' complexities, navigate their processes seamlessly, and advocate your potential to lenders.
Here's how we make it happen:
- Empowerment through free tools and services: Harness our suite of free tools and services to kickstart your journey.
- Visualize your options: Use our intuitive loan simulator to tailor solutions to your unique needs.
- Guidance at your fingertips: Consult with your dedicated Pretto expert for personalized advice and support.
- Secure your ideal loan: Sign off on the perfect loan with confidence, backed by our expertise and extensive lender partnerships.
