Filed under : For Sellers

The Benefits of Hiring a Mortgage Broker

If you’re interested in buying or investing in French real estate, hiring a French mortgage broker will help you demystify how home finance works in France and save you time and money. Expert mortgage brokers have built and maintained strong relationships with numerous French mortgage lenders, so they can provide you with a comprehensive overview of which mortgage products are most suitable for your needs. A French bank will only present the products they are selling to you which may not be suitable. Further, most clients don’t have time or language skills needed to shop around 4 or 5 banks to get a clear picture of a competitive quote. Throughout the entire process of applying for, securing, and finalizing your mortgage option, your French mortgage broker will serve as the intermediary between you and the banks.

It’s possible to handle the entire mortgage application process on your own, but the primary reason that French mortgage brokers are hired is to reduce the time and effort needed to secure a French mortgage. Your mortgage broker will help you save significant amounts of time by providing you various mortgage quotes from different lenders, informing you of the missing documents that are needed to complete the application, and advising you on the pros and cons of each product.

Qualifying for a French Mortgage

Unlike the mortgage processes in many other countries around the world, the French mortgage process involves a rather manual client analysis to determine eligibility to borrow. There are two primary elements to consider when determining whether an interested buyer is qualified for a French mortgage: obtaining French life insurance and proving sufficient income to cover the monthly mortgages.

It is common practice in France that all French mortgages are backed by French life insurance for the borrowers. More specifically, many banks require insurance policies that have terms and conditions specific to their bank.

Second, borrowers need to provide proof that monthly payments for loans, existing and new mortgages, and other financial commitments must not exceed more than one-third of the borrower’s monthly income. The rest of the income can be used to pay for other costs of living. The purpose of this requirement is to reassure the French banks that there is a sufficient amount of money allocated to paying the monthly payments for the French mortgage.

Primary Costs Involved With a French Mortgage

When searching for a French mortgage, it is important to know that there are three main types of costs associated with obtaining a mortgage in France. The three main costs are: the mortgage deposit, bank arrangement fees and notaire/legal fees.

The mortgage deposit is the initial down payment required by the French banks on the mortgage loan. The amount required is determined by a borrower’s income taxes, revenues, outstanding loans, other mortgages, nationality and country of residence, and much more. For most non-residents, the minimum amount required for the deposit is at least 20% of the purchase price of the French property.

French banks also require bank arrangement fees for organizing and providing French mortgages. Usually, this fee is around 1% of the purchase price, but it varies from bank to bank. This is usually negotiated down by your French mortgage broker.

The notaire and legal fees are approximately 7-8% of the purchase price for an existing property and 5% for a new property. There are also agency fees involved in the process, but negotiations can occur over whether it is the buyer or the seller who pays the agency fees.

Fixed or Variable Mortgage Rate?

An important decision when dealing with French mortgages is choosing a fixed mortgage rate or a variable mortgage rate. Both types are very popular, but your final decision depends on whether you want more security or more risk. If you’re looking for security and guaranteed monthly payments, then you would most likely want a fixed mortgage rate, but it comes at a higher rate. On the other hand, if you’re interested in an initial lower mortgage rate, you would prefer a variable rate. However, there is more risk involved with this option because the mortgage payments are not be as stable.

French Leasebacks

For those who are unfamiliar with French leasebacks, here is a short description of what they are and the benefits. A French leaseback allows investors to buy a freehold French property that allows investors to cover a majority of the mortgage repayments with the tax-free rental income they receive. Although the initial purchase price includes the 19.6% VAT, the VAT is eventually fully refunded to buyers. A management company will then rent out the property for 9 to 11 years, taking care of maintenance and insurance costs. However, owners receive an annual return through the rental income, generally around 3% to 5% a year, and also have the benefit of spending a couple weeks a year in their own residence or other associated French properties.

The leaseback scheme was implemented by the French government in the 1980s to spur more consumption within the tourism and construction industries. The government realized that there were more and more tourists visiting France and that the country needed an incentive for outside buyers to invest in French property, so the current French leaseback system was created.

A French mortgage can easily be obtained through a mortgage broker, even if the buyer does not live in France. Obtaining a French mortgage for leasebacks is an extremely attractive option because interest rates are low and the taxable rental revenue can be reduced by the amount of interest paid on the French mortgage. For further instructions on how to successfully obtain French mortgages for buying real estate in France, please contact France Home Finance.


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