The single most important element in successfully getting a mortgage in France is income.
How much can you borrow?
There are no ‘self-certification' loans nor non-doc (‘sub prime') loans in France, therefore, you need to prove you are receiving a regular income that can cover all of your debts three times over. This is because strict Banque de France lending laws state that your total debt cannot exceed more than one-third of your total income. In some circumstances, depending on the bank, you may get a slightly larger margin but this is never more than a few percent. So if you earn EUR 3,000 a month as a salary, then your mortgages (including the new one), credit cards, loans and other debt repayments cannot come to more than EUR 1,000 per month.
Example of mortgage calculationsPurchase price EUR 300,000
What types of loan are available?
Variable interest rate mortgages
These are based on the lending bank adding a margin to one of the Euribor indexes, normally the 3-month or 12-month rates. They are typically fixed for anything from the first three months to five years, then go up or down as the market index moves. Some banks do offer variable rate mortgages that can safeguard against rises in the interest rate by capping the maximum rate, or by extending the term of the loan rather than raising the monthly payment. Most products also give you the option to convert to a fixed interest rate at any time.
Fixed interest rate mortgages
The repayments with this type of mortgage are fixed for the whole term of the mortgage, so you know exactly what you will be paying each month over the whole term of the loan. However, fixed rates are usually higher than variable rates and there are normally larger penalties for paying off your mortgage early than you would have with a variable interest rate mortgage.
Interest-only (prêt infiné) mortgages
Hugely popular in the UK and US, interest-only deals are becoming more available in France if you want to reduce the monthly repayment to a minimum. However, there are some differences with the products in other countries:
For anyone looking to purchase on a buy-to-let basis, this type of mortgage does not really exist in France. Future rent can be taken into account but the bank will normally devalue the property by 10 percent and then lend 85 percent of the 90 percent valuation, meaning a larger deposit is needed. The bank will also only take 80 percent of possible 'long-term, unfurnished' rental income into account, which is considerably less than what you will probably achieve through seasonal weekly lettings.
Bridging loans (Prêt relais)
This is a loan for those purchasing a property in France who have yet to complete the sale of their existing French property. In most circumstances the loan is available for up to two years pending the sale of the existing property, as long as there is enough equity in it. The loan may be up to 70 percent of value of the existing home. The borrower generally only pays the interest element of the loan, with the capital being paid off on sale of their present property.
This information is provided as a guide only. If you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.
Based on the original article by Expatica expert Steven Grover.
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