The different loan options

You have found the accommodation of your dreams and wish to become an owner.

Do you want to borrow without contribution to keep all of your savings? On the contrary, do you have funds and do you want to know the different types of mortgage?

What are the best options based on your profile, your financial situation and your financing plan?

In the following sections, we will present the different loan options to you in order to enlighten you on the best possible choices according to your profile.

The mortgage loan, also called ‘crédit immobilier’, is a bank loan intended to finance totally or partially:

• The purchase of real estate
• It’s construction
• Construction work on the property

The mortgage binds you contractually to a bank. The latter will lend you money against full repayment of this sum with interest.

The price of a home loan is based on two criteria that allow you to know the amount of monthly installments you will have to make:

• The capital borrowed
• The interest rate of the loan

The price of the loan must also take into account additional costs, namely:

• Creditor insurance and bank guarantees
• Application fees
• Notary fees
• Any penalties for early repayment
• The mortgage security
• The calibration of its amortizable loan

A mortgage loan has a cost determined by your interest rate. The better the mortgage rate, the lower the cost of your loan.

The calculation of this interest rate is based on 3 elements:

• Financial market rates
• The costs of creating your mortgage
• The bank’s margin

It is important to present a strong case to the bank. The bank will study different criteria before offering you a credit offer:

• Your income: salaries, pensions, etc. The bank will look at all your regular cash flows.
• Your profession: what type of contract do you have? Interim, CDI, CDD, entrepreneur? The bank will favor profiles who have stable resources. However, you can borrow even with a fixed term contract.
• Your contribution: the money you will bring for your project is highly observed by the bank. The higher the contribution, the more the bank will avoid a refusal.
• Your debt capacity: do you have other loans? Based on your debt capacity, the bank can determine how much you can repay per month.
• Your account and savings management: how do you manage your capital? Are you a regular saver or do you often go overdrawn?
• Your age: banks do not lend in the same way to young and old people.

The more your profile is risky, the higher the mortgage rate will be. However, it is possible to lower the rate through personal contribution and adding subsidized home loans such as zero-interest home loans to your financing plan.

However, a low mortgage rate doesn’t necessarily mean you get the best mortgage. The other criterion that has an impact on the price of your loan is its duration.

Indeed, lower monthly payments, for a longer repayment period, will certainly weigh less on your monthly budget but will cost you more in the end because you will pay interest for longer.

Main mortgage loans

Depending on your financial situation in general, objectives and financing plan, there are several types of loan:

1. The amortizable mortgage loan : this is the most classic and widespread version of mortgage loan.

• It applies when purchasing a primary or secondary residence.
• Monthly repayment: it includes part interest and part capital.
• Cheaper than a loan in fine
• The accompaniment of a savings contract is not necessary.

2. The real estate loan in fine : offers the possibility of repaying the capital at once, which allows the borrower to reimburse only the interest via the monthly payments:

• It is generally more expensive than the amortizable home loan.
• It is targeted at rental investments and heavily taxed households.
• More relevant for investors who qualify for Tax on Real Estate Fortune (IFI) or non-residents for tax purposes.
• Monthly repayment: it includes a portion of interest. The capital is repaid.

3. The bridging loan : allows you to buy a new home before having sold the previous one.

Advantages :

• Avoids rental during the transition period
• Avoid selling off your property in order to sell it urgently. You have one to two years to resell it.
• Avoids repaying two mortgage loans simultaneously
• The bank advances 50% to 80% of the value of your current property

4. The mortgage without contribution: when you want to apply for a loan, the bank may ask you for a contribution which is generally used to finance the costs of notary, files, agency, etc. However, it is possible to borrow without a contribution due to lack of sufficient savings or if you want to keep it for other reasons. However, you need a solid case.

Selection criterias:

• Young, working people, preferably a couple
• Job stability (being on a permanent employment contract, civil servants, etc.)
• Good management of your capital (no overdraft during the last 3 months at least)
• Be able to justify your lack of contribution
• The credit rate of a loan without contribution is slightly higher. We speak of a 110% loan when: the property (100%) plus fees (around 10% for guarantee and notary fees) are borrowed

Assisted loans in addition to the main mortgage loan

With the main home loans that we saw in the previous section, it is possible to combine various forms of assisted loans.

These are granted by the state subject to income or situation conditions at an advantageous rate.

– Prêt Accession Sociale (PAS): it promotes access to home ownership for families with modest incomes for their main residence. To obtain a PAS, your resources must respect a ceiling and a floor set according to the household expenses and the place of residence.

The benefits are as follows:

• Repayment period up to 30 years
• Up to 100% of the purchase financeable
• Can be combined with other loans (zero rate loans, housing equity loan)

– Prêt conventionné: it is intended for anyone who wants to become the owner of his main residence (by buying it or having it built).

• It is granted without a means test
• The interest rate of the loan is capped
• It is possible to obtain this loan from financial institutions that have signed an agreement with the state

– Zero rate loan: as the name suggests, this is a 0% mortgage loan. The purpose of this government support is to facilitate access to homeownership.

The conditions are as follows:

• Be a first-time buyer: have not been an owner for 2 years and not exceed a maximum income
• Obtain your main residence

The characteristics are:

•  Eligible for a loan period of 20 to 25 years
• No expertise fees, application fees and interest
• Can be combined with other loans

Mortgage loan for civil servants: as a civil servant, you benefit from advantageous mortgage conditions. Indeed, some banks have concluded agreements with public service mutuals that offer hem advantages, including:

• Borrower insurance at advantageous rates
• Free or preferential rate deposit
• Reduced application fees

– Prêt Action Logement: this is intended for employees of non-agricultural companies in the private sector with at least 10 employees. By contributing to the Interprofessional Housing Fund (CIL), the employer gives his employees the opportunity to obtain an attractive loan thanks to its advantageous rate.

– Ownership saving scheme: it is a savings account rolled out by the state to encourage citizens to save for the purchase of a primary residence. After a minimum period of 4 years, it allows you to benefit from a mortgage at a contractually defined rate.

– Pension funds: they offer to members additional subsidized real estate loans for the purchase of a primary residence. The conditions for granting these loans depend on each fund, and therefore you should contact them directly.

To conclude, it should be said that the choice of loan depends on your file:

• The details of your project:  amount, duration, rent to be collected
• Your financial situation in general: professional income, overall property income, family situation, development prospects

All these criteria will help you find the best loan for the success of your real estate project.

However, the help of a real estate broker is often essential to make the right decision.