Key steps to getting a French mortgage for buying property in France: All you need to know when buying a house in France on a mortgage.
1. Decide If You Need A French Mortgage
The first step on your journey is to ask yourself whether you need to finance your purchase, and if so, what sort of finance you need to arrange. You have two options:
Getting a mortgage for France
There are theoretically two sources for a mortgage for France, a French bank or a mortgage lender in another country. Though each country, bank and mortgage product will have unique terms and conditions there are two overriding considerations that make a mortgage in France the best option.
The first consideration is the security you will need to offer the lender. If you take a mortgage in France with a French lender, the mortgage can be secured on the French property you are buying. A non-French lender will not be able to secure a mortgage for French property on the property itself so you will need to produce other security of equal value, for example your main home if it is mortgage free.
The second consideration is borrowing risk. If you have the property and the financing in the same country and currency as the asset (the French property) and liability (the loan) then both will move together thus presenting no financial risk. Alternatively, if you are buying a house in France on a mortgage and your loan is from outside France you have a very high implicit risk. This risk can be driven by currency movements, for example Swiss mortgages, or by changes in regulations such as exchange control.
French Rent To Buy
Rent to buy, or vendor finance as it’s sometimes called, is essentially an option contract agreed between the buyer and seller. Though common in Italy, it is relatively unusual in France and is not as clearly recognised by French law which uses an extension of the viager to achieve the same ends.
2. Getting A French Mortgage
If you decide that getting a mortgage in France is the right option you then need to consider where to go to get a mortgage for France. Again, you have two options:
There are just three main French banks that are prepared to give a mortgage in France to International or Overseas clients. Each has its own call centre which will give basic advice on their products and give you the encouragement that you have “approval in principle” for your French mortgage.
On day one it all sounds so simple, but the reality is very different.
The first problem is the offer of “approval in principle”. You might believe that this means that your French mortgage has been approved in principle and that all you need to do is to submit a folder of documents and your mortgage will arrive.
Unfortunately, that’s not what you’ve been given.
The bank’s commitment is to do no more than send you the pack of application forms which they agree to study once you complete and return them. There is no guarantee whatsoever that the bank’s underwriters will approve your French mortgage – It’s a great sales line though.
The second problem is the application form pack itself.
A typical French mortgage application takes around 14 weeks to complete quickly and complex applications can take much longer. The worst case we’ve had took 19 months to finalise, from completed application to drawdown of funds.
The bank will always put the onus on you to correctly complete the form and send them all necessary documents. And to help you they have a call centre open for limited hours, which will know nothing of your case and which can give you absolutely no advice. If the thought of trying to self-manage a complicated application through a bank call centre in the context of foreign regulations is more than your sanity can cope with you’re not alone.
How French Banks Work
The 12 Tasks of Asterix video (10 minutes, but worth watching) is pretty good training on how to deal with a typical French bank – you can watch it on via this YouTube link
Thankfully there is a better way, using a French mortgage broker.
Working With The French Property Buying Process
The final problem, which is sadly all too common, arises because it is far easier to get yourself locked in to an irrevocable French property purchase than getting a French mortgage. Typically, what can happen is something this:
a. The buyer finds a property they like.
b. The selling agent persuades them to sign a purchase contract (compromis de vente) which becomes legally binding after 10 clear days. The contract may have a clause suspensive pertaining to a failure to obtain a mortgage, but this can often be far trickier to enforce than it appears.
c. The application works its way forward in the bank’s system and you find the “approval in principle” from the salesman (who’s met his sales target with your help!) turns into a mortgage refusal from the bank’s mortgage underwriters.
d. You ask the bank for an explanation and you get one, something like “you don’t meet our lending criteria”.
e. Without a mortgage, you tell the selling agent that you will have to withdraw from the purchase contract. However, you will need to produce a written bank refusal that exactly matches the clause suspensive.
f. Back to the bank to ask for a formal refusal. The bank will do one of three things:
One, it may give you a formal refusal which matches the compromis in which case you’re safe.
Two it may give you a refusal which does not match the compromis. For example the compromis states “a mortgage of €100,00” but because you wanted to add a pool you applied for a mortgage of €105,000 – and the agent will refuse to accept it as a refusal so you lose your deposit.
Three the bank may refuse to give you a refusal on the grounds that it never had a complete application to evaluate – for example you may have missed a document from the pack you sent them – so without a refusal you, yes you’ve guessed it, lose your deposit.
French Mortgage Brokers
French mortgage brokers fall into two types, those that charge you a fee and those that don’t – to understand this better read our page on How to Choose a French Mortgage Broker.
First some background points.
a. French mortgage broking outside France is unregulated. A broker may claim to be regulated, but they are not and cannot be regulated for French mortgages even if they are regulated for their home country broking activities.
b. All French banks pay their brokers an introduction fee of the order of 1% to 1.5% of the mortgage value, though this is normally capped. There are no exceptions, everyone gets this fee even if they charge you a separate client fee on top of what they receive from the bank.
c. Bank introductory fees vary, as do the caps, so you need to check whether the product you are being offered is best for you or whether it is the option that generates the most commission for the broker. By way of example, the same €800,000 mortgage can earn a broker between €8,000 to €12,000 commission depending upon which bank provides the introductory fee. Of course, you would need to add any fees you pay to the broker yourself to see what the broker will earn.
d. Using an intermediary, such as your estate agent, to introduce you to a broker may be more expensive still expensive because they will often expect to receive a significant share of the broker’s fee income, and guess who ultimately pays – You.
We at Best French Mortgage suggest you use the broker of your choice for three reasons.
Firstly, to get well informed current advice as to your best options.
Secondly, to get solid long-term help throughout the application process and in specifically to put an expert between you and the bank underwriter – a good broker will have a dedicated underwriter at each bank.
Thirdly, to have the possibility of having a refusal converted into a mortgage approval due the broker’s long term working relationship with the underwriter. No broker can guarantee a mortgage, but a good broker can often overcome difficulties in marginal cases and identify when a bank underwriter has made a mistake.
3. Preparing Your Mortgage Application
Right, you’ve decided on getting a French mortgage and you’ve decided whether to go to a bank or use a broker so let’s get down to business.
A mortgage in France is only granted after a financial audit of the applicant as French banks don’t normally use credit scoring.
Here’s how the process runs:
First, you need to complete the bank’s application form which can be 12 pages or more. Though the information a bank will require is fairly well identical between banks, the format can vary widely as can the level of detail the bank requires for each answer.
Second, you will need to supply the lender with documentary proof of your financial position. Typically, a bank will require at least the most recent three months bank and credit card statements for every account you have. It is vital that you omit no accounts because one of the checks will be to see if any accounts are undeclared. They will also check on any large transactions, either in or out, and all regular transactions. Though this sounds simple, in our experience it can take a number of cycles to satisfy the bank completely.
If you have employed income you will normally be expected to produce pay slips (or equivalent) and your employment contract. If your income includes commission and / or bonus payments the bank will typically ask for proof of the last three year’s payments and a letter from your employer to the effect that the payments will continue into the future.
In the case of other income, such as investment, trust or property income you will need to make full disclosure along with the production of an accountant’s letter attesting to the income.
In all cases, especially if you have self-employed income, the bank will place some reliance on your annual tax return using the principle that the only real income is tax paid income. This can be a significant issue if your accountant has sought to minimise your tax bill!
Generally, all documents can be submitted electronically as scanned images though, depending on the bank, some specific signed documents may need to be supplied as originals.
A good French mortgage broker will orchestrate the whole of this process so you will just need to find and send in scanned documents as called for.
4. Reviewing Your Mortgage Application
The next stage, once all the documents have been submitted, is for the bank to perform a detailed analysis of the documents you’ve submitted.
The analysis is done by a financial analyst whose responsibility it is to prepare the application for the underwriter. At this stage, the bank are not attempting to evaluate your application, but only to ensure they have all the information they need in order to evaluate it. This is essentially a screening function. A simple French administrative process, just like getting permit A38 in the Asterix video above.
How the analyst works will be very much dependent on whether you have applied for your mortgage directly or whether you are using a French mortgage broker, but in both cases the checks are identical.
What The Bank Analyst Checks For
A. Completeness of personal ID for all applicants.
This is usually at least copies of all passports and documents from the International A (identity) and B (place of residence) lists, which must be up to date.
B. Proof of income.
This will typically be a copy of your employment contract plus recent payslips and an employer’s letter confirming bonus and commission entitlement.
If you are sel- employed then you will need to prove your income via an accountants certificate plus proof of tax paid. N.B. to a French bank, if the income was not taxed then it is NOT income.
If you have buy to let properties you will need to produce full rental accounts plus copies of all tenancy agreements. N.B. you cannot net off costs and declare a net income figure. Also a French bank will apply a discount to the income.
If you have trust or similar income you will need to produce proof of entitlement, the trust legal documents. Trust income is normally heavily discounted because trusts are normally discretionary, for tax reasons, so income cannot be guaranteed into the future.
C. Financial Beheaviour.
The analyst will check that the applicants have provided at least three months statements for every bank account and credit card. They will specifically look for inter account transfers that might indicate you have not declared all accounts.
They will look at all regular payments to establish whether you are servicing other debts or receiving income not declared above.
Finally, they will review all large financial transactions and may require explanations for items of interest. If the transaction of interest is within the extended family they will usually ask for the counterparty’s bank statement.
D. Basic Ratios and Checks
Though the real analysis is undertaken by the underwriter, some of the tests are straight forward and will be tested by the analyst.
Examples of these are:
- Debt to Income Ratio (DTI)
- Residual Income level
- Loan to Value Ratio (LTV)
- Permitted Country List (of the applicant)
- Not “Banque de France” (i.e. not on the Banque de France defaulters list)
Final Review Steps
Once the analyst believes the dossier is complete, and depending on the actual bank’s procedures, the analyst will do two further things.
Firstly, they will instruct a valuer to value the property for mortgage purposes. Some banks do this themselves, whilst others subcontract this to a local estate agent. In many cases the property will be visited, but in areas with high liquidity the valuer is likely to rely on price comparators.
Secondly, the analyst will check with the compliance department that there are no grounds for refusing a mortgage recorded on one of the international confidential databases.
Assuming the last two checks are passed the dossier will be passed to the mortgage underwriters.
Mortgage Broker Clients Are Handled Differently
In theory, there should be no difference, but in practice there is.
Because the banks consider the analyst’s job to be more like compliance (a business cost) than trading or selling (revenue earning) they employ as few as they can. Consequently, the analysts are very busy and need to process applications as fast as possible.
If the application has been submitted by an individual and the analyst considers there to be some missing documents the analyst will email the client to notify them. In some case this may be a list of missing documents whilst in others it may just be a rejection of the application. Quite often this can leave the individual applicant wondering what on earth to do next, especially if the missing document needs to originate in France.
By contrast, a good broker will have a solid long term working relation with the analyst. Typically, the analyst will phone the broker, list what’s missing and leave it to the broker to collect the missing documents and submit them. Clearly the broker may need to revert to the client, but in some cases the broker may be able to obtain a missing document directly, say from an estate agent.
The net effect is that an application through a broker is less likely to be rejected as incomplete because the broker has a better opportunity to correct an application before it is rejected.
4. Evaluating Your Mortgage Application
If your application has got this far things are looking good, but it still has to be to proven that you meet the bank’s lending criteria.
The underwriter will have before them everything they need to make a lending decision, or at least you’d think so.
In practice, though the banks might not acknowledge this, there remain a number of obstacles to overcome.
The first of these is interpretation. Because something was passed by the analyst it does not always follow that the underwriter will agree. There are two reasons for this, the one good and the other embarrassing.
The good reason is that, because the underwriter is actually committing the bank’s money, they will look harder at everything. What may have seemed fine to the analyst may be questionable to the underwriter.
Let me give you an example. We had one client, a consultant surgeon who gave their young daughter their very modest pocket money via standing order into a bank account to teach them how to manage money. Because the sum was very small, just a few pounds a month, the analyst passed over it. The underwriter, being more suspicious, decided that the payment must be a loan repayment for a loan that had not been declared on the application. Ultimately, we had to produce the child’s bank statement, along with a photograph to convince the underwriter that the transactions were innoccent and reasonable.
The embarrassing reason is that underwriters can make mistakes and bank policy can change on a day by day basis.
We have had cases of mistaken identity, cases where the valuation was on the wrong property and cases where the dossier was “too difficult” and hidden in the bottom draw. On this latter point we had one case where the bank took 19 months to process the application!
We have also cases where the bank’s aggregate lending for the internal monthly / quarterly target was off track and the lending criteria were arbitrarily flexed.
What is very important to understand is that there is virtually no appeal against the underwriter’s decision for an individual. It is thus vital that the application is in the best shape possible by the time it reaches the underwriter.
For brokers with a long bank track record the position is a little easier, though not much. Generally a broker can get an explanation for an underwriting rejection from the analyst and, if correctable, may get the application reconsidered in the light of new data.
5. The Decision
Once your application has passed through underwriting it can take two routes, approved or not approved.
If your mortgage has been approved, the bank will proceed to issue a formal offer which must be delivered to your home address with proof of receipt. Usually, banks will use courier companies for speed and certainty. Your broker, if you have one, will be given the courrier tracking reference and so will be able to monitor progress – this shouldn’t be necessary but we have had cases of the courier trying to deliver in the wrong country!
Once you have your offer you must, under French law, reflect on the offer for 10 clear days (thus excluding the day of arrival and the day of despatch) before you return it. It is very important to observe this rule because if you return it early the bank cannot legally accept it and they will have to issue a new offer with a repeat delay for reflection.
The offer will also state how long it is valid for – typically 1 to 3 months – and how long you can wait without drawing your mortgage down. Special provisions apply to mortgages for new build which are normally drawn down in tranches as building completion stages are reached.
In practice you should accept the offer and draw your funds as soon as is practicable because all offers have a small print clause stipulating that the offer may be revoked at the bank’s discretion. Revocation is quite unusual, but it can be quite dramatic. In the past one bank decided to cancel all offers to US and Australian citizens and another decided to cancel all offers to Turkish citizens no matter where in the world they lived and worked.
Once you have returned your duly signed off acceptance, and fulfilled any supplementary conditions stipulated by the underwriter, for example insurance, the bank will notify the notaire that the funds are at their disposal and available for call.
The notaire will normally call for the funds around 3 days before the completion is scheduled: your mortgage repayments will start from the moment the funds leave the bank.
Mortgage Not Approved
If your mortgage application is not approved you must ensure you obtain a formal rejection document from the bank. If your compromis includes a clause suspensive, the rejection must exactly match the mortgage specified in the clause. If you are working with a mortgage broker, the broker will do this for you.
You then have two options, to try another bank or try and alternative source of funding.
In most cases it is not realistic to try a different bank because, by and large, all the banks use the same underwriting criteria. There are some detailed exceptions, but you’d need to discuss this with a broker.
Alternatively, you and the vendor could consider a Rent to Buy agreement. This is still relatively uncommon in France, though becoming less so. The details of Rent to Buy are outside the scope of this article.