7. French Mortgage Eligibility Criteria
7.1. Loan to Value Ratios
If you are seeking a loan for a second home from a French lender then you are unlikely to find many willing to lend above 80% of the purchase price/value of the property.
The rules are a bit more flexible in the case of the purchase of a main residence, or for home improvements and investment projects, or where annual income is strong and stable, providing in each case you are resident.
Similarly, in the case of a young couple, or in the event of divorce or death, the lenders will look at your circumstances and take a view.
Few lenders will grant a 100% mortgage, but your deposit (l’apport personnel) can include certain other loans, notably a prêt à taux zéro and those from l’épargne-logement, thereby increasing the overall loan to value ratio.
7.2. Income Criteria
Whilst in many countries, mortgages are granted on the basis of a multiple of your earnings, this is not the case in France.
Of greatest interest to French lenders is the level of your debt to total annual earnings, and the stability of your income.
As a general rule debt cannot exceed 33% of total eligible revenues.
However, depending on your circumstances, it may be over 40%, or as low as 20%. The 33% rule is merely custom and practice, not the law.
Thus, if the bank does not consider you have a strong business or stable employment, the percentage level of the loan will be reduced.
In particular, if your main source of income is from property rental earnings the bank will normally only accept a proportion of the income because of the risks of non-payment of rent by the tenant, or works that may be needed to the property.
Conversely, if you have a high and stable income, the lending criteria can be relaxed. What the bank is concerned about is just how much you have left to live on after payment of your loan debt.
Since 2020, against the rise in levels of personal debt in France, the Banque de France has stepped in to remind banks of the need to adhere to the 33% loan to income principle, making it more difficult for banks to exceed this level.
The percentage rule on repayments to earnings also means that the higher the rate of interest on your loan, the lower the amount you will be able to borrow!
If you are nearing the 33% limit, one approach you or your lender might wish to consider, is to simply extend the length of the term of the loan, so that the monthly repayments are reduced as a percentage of your income!
In the case of house purchase you will be expected to fund from your own resources all transaction costs, which are likely to be in the range 7%-10% of the purchase cost.
There are a few lenders who will also roll the fees into the mortgage, but you will find the rates are not as competitive.
As with any loan, in examining your application the bank will want to assess the level of risk to which they may be exposed, and any offer will have regard to these risk factors.
Key risk factors for a bank will be the usual culprits - low income, insecure employment or employment of short duration, a loan of long duration, a high level of loan to value, and a high level of existing and future personal debt.
If you run a business and have a variable income, then the lender will take into account the duration of the business and your income over several years.
If a new business then the lender is obviously going to be very cautious, and will want to monitor financial performance over several months before consenting to a loan.
Accordingly, if you want the best deal then you need to take account of these risk factors.
Conversely, if you are resident and on low income, you may well be entitled to one of the subsidised mortgages that are available in France.
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