Home Loan in France: Requirements for Obtaining a Mortgage as a Foreigner

Are you looking to buy a house in France and wondering about the home loan process in France? Whether you are an expatriate, a non-resident, or a local, each profile presents specific needs and challenges. Understanding the criteria and requirements of French financial institutions will help you better prepare your home loan application in France and optimize your chances of securing financing. This article will guide you through the main steps and conditions necessary to obtain a home loan in France, helping you achieve your real estate project.

General Eligibility Conditions for Obtaining a Home Loan in France

Types of Loans in France

• Amortizable Loan: The amortizable loan is the most common type of mortgage in France. With this loan, the borrower repays both the principal and the interest regularly, usually over a period of 15 to 25 years. Each monthly payment consists of a portion of interest and a portion of principal repayment. Over time, the interest portion decreases while the principal portion increases until the loan is fully repaid.
• In-Fine Loan: The in-fine loan is an interesting option for rental property investors. Unlike the amortizable loan, the borrower only pays the interest during the loan term, and the principal is repaid in a single lump sum at the end of the loan. This type of loan often requires the placement of an equivalent amount to the borrowed capital, usually in the form of life insurance, to guarantee the final repayment.
• Bridge Loan: The bridge loan is designed for homeowners who wish to purchase a new property before selling their current one. This short-term loan (usually 12 to 24 months) allows the financing of the new property purchase while awaiting the sale of the old one. The amount of the bridge loan is calculated based on the estimated value of the property for sale, typically between 60% and 80%.
• Zero-Interest Loan (PTZ): The zero-interest loan (Prêt à Taux Zéro, PTZ) is a government-assisted loan aimed at facilitating home ownership for first-time buyers under certain income conditions. The PTZ allows financing a portion of the purchase of a new or old property with renovation work without paying interest. The amount and conditions of the PTZ vary depending on the geographic area, the borrower's income, and the type of property.

Information to Provide

• Identity Documents
• Applicant's Age: A young applicant, especially a first-time buyer, is more likely to attract bank interest. However, it is entirely possible to secure a loan even after the age of 65! The best approach is to shorten the repayment period as much as possible and choose a good insurance policy.
• Proof of Income: Salary slips or, for self-employed individuals, financial statements. Additionally, demonstrating borrowing capacity is crucial.
• Bank Statements: Providing recent bank statements is essential for the bank to assess your financial situation.
• Maximum Debt Ratio: The debt ratio (expenses + loan installments / income) is the proportion of income used to repay the loan. It allows the bank to verify that the loan is compatible with your standard of living. In France, since January 2021, the maximum debt ratio is 35%.
• Employment Contract or Employer Certificate: French banks often prefer stable profiles, so salaried employees on permanent contracts (CDI) or civil servants are ideal candidates. However, if this is not your case, do not worry: the most important aspect when applying for a loan is to present a stable and regular financial situation.
• Tax Returns: Providing tax returns is essential to demonstrate solvency.

The Importance of Personal Contribution

Personal contribution plays a crucial role in obtaining a mortgage. It is the amount of money that the borrower can invest directly in the property purchase, in addition to the amount borrowed from the bank. This contribution, often consisting of savings, an inheritance, or proceeds from selling another property, significantly influences the bank's decision to grant a loan.

In France, although there is no universal rule, banks generally require a personal contribution equivalent to at least 10% of the property's purchase price. This contribution often covers notary fees, agency fees, and other purchase-related costs, meaning that the bank loan will primarily finance the net purchase price of the property.

However, some banks may require a higher contribution, especially for profiles presenting higher risks (such as non-residents or borrowers with limited credit history).

Guarantees Required by Banks

When taking out a loan, the bank may request various guarantees to ensure proper repayment. The most common ones are:

• ‍Mortgage on the Property: This is a common guarantee where the property itself serves as collateral for the loan.‍
• Bank Guarantee or Surety Company: This involves a third party (usually a bank or a surety company) guaranteeing the loan repayment.‍
• Borrower’s Insurance (death, disability, unemployment): This insurance covers the repayment of the loan in case of death, disability, or loss of employment, providing additional security for both the borrower and the lender.

2.The Mortgage Application Process

Step 1: Preparing the Application

A good application should be as clear as possible and contain strong guarantees. Gather all necessary documents, including identity documents, proof of income, bank statements, and any additional guarantees that can support your application.

Step 2: Researching and Comparing Loan Offers

Compare loan offers from different banks to find the best terms and interest rates. Consider consulting with a financial advisor or broker to understand all available options.

Step 3: Submitting the Loan Application

Submit your loan application to the chosen bank along with all required documents. Ensure that your application is complete to avoid delays.

Step 4: Feasibility Study by the Bank

The bank will conduct a feasibility study to assess your financial situation and the viability of your loan application. This includes evaluating your debt ratio, income stability, and the guarantees provided.

Step 5: Loan Acceptance and Signing the Offer

If the bank approves your loan application, you will receive an offer. Review the terms and conditions carefully before signing the loan agreement. Once signed, the loan will be disbursed according to the agreed-upon terms.

3. Specific Criteria for Expatriates and Non-Residents

Obtaining a mortgage in France as a foreigner is quite feasible, but it involves meeting certain specific conditions. French banks consider several factors when evaluating loan applications from borrowers with foreign incomes.

Additional Guarantees : French banks may require additional guarantees to compensate for the perceived risk associated with foreign incomes, such as those mentioned earlier (mortgage, bank guarantee, borrower’s insurance).

Requirement for a Bank Account in France : To facilitate repayment management and ensure easier financial tracking, French banks generally require the borrower to open a bank account in France. This account will be used for loan installment payments and income domiciliation.

Conditions Based on Nationality : EU citizens generally face fewer difficulties in obtaining a mortgage in France as they benefit from the same conditions as French residents. However, non-EU foreigners may face stricter conditions, especially in terms of residency.

Impact of Residence Location: The borrower’s residence location influences the complexity of obtaining a loan. Non-residents, whether expatriates or living in their home country, are often perceived as higher-risk profiles by French banks. This can result in stricter loan conditions, higher interest rates, or higher personal contribution requirements.

Different Taxation : Certain nationalities may face additional complications due to tax agreements between France and their home country. For example, American citizens may encounter increased difficulties in obtaining a mortgage due to the strict tax compliance requirements imposed by the FATCA (Foreign Account Tax Compliance Act).

Use of a Broker : While it is not mandatory to use a broker, it is highly recommended for foreign investors. A broker is familiar with the specificities of non-resident applications and has a network of banking partners willing to accept international profiles. They can negotiate the best conditions and simplify the loan application process.

4. Additional Costs to Consider

Taking out a mortgage incurs several costs. Do not forget that the process will lead you to pay for:

• ‍Application Fees : These are fees charged by the bank for processing your loan application. They can vary significantly between institutions, so it's worth comparing.‍
• Guarantee Fees : These fees cover the cost of securing the loan, which may involve a mortgage, a bank guarantee, or a surety company. The type and amount of guarantee fees depend on the lender's requirements.‍
• Notary Fees : Notary fees are mandatory for property transactions in France and include taxes, fees, and the notary's remuneration. They generally range between 7% and 8% of the property's purchase price for existing properties and are lower for new properties.‍
• Borrower's Insurance : Borrower's insurance covers the repayment of the loan in case of death, disability, or unemployment. This insurance is usually required by the bank and is an important part of the loan cost.

Conclusion

Becoming a homeowner in France is an ambitious project that requires thorough preparation and a good understanding of financing conditions. By following the outlined steps, carefully preparing your application, and comparing loan offers, you will increase your chances of success. Don't hesitate to seek the help of professionals to guide you through this process. With proper preparation and the right advice, you can achieve your real estate dream with peace of mind.