MY CHATEAU

PART I

 

Understanding French Mortgage Process/Procedures/Requirements

French mortgages have are used to purchase property and renovation improvements. Historically the ability to re-finance your loan or obtain a new loan was not done and basically impossible but in the past 10 years lenders have modified how they do business and have been more open to offering solutions to troubled loans. Not uncommon for American buyers there is much documentation required for the French mortgage application process. Choosing the correct mortgage most suitable for your circumstances is crucial.

 

Various Types of French Mortgages Available & Qualification

• Property purchases (with and without renovations necessary)

• Existing Homes Still under construction or New Homes

• Bridge Loans - Only allowed if selling property in France to buy another French property with new mortgage secured.

• Re-finance Existing French mortgage to reduce your monthly payments and/or benefit from lower interest rates

• Replace existing mortgage in different currency (used to purchase French property) and obtain new loan in euros

• Home equity loan (called in U.S.) to get cash out of your French property for re-finance or equity release - the title deed or loan deed with the complete repayment table

If a property needs total renovation, the costs of the renovations may be too high in relation to the appraised value of the property and the lenders have the right to decline to lend you mortgage finance. Buying to renovate or build a new property demands careful pre-planning. Certain French building regulations are very different from other countries and permission has to be granted from the local mairie. Detailed applications must be completed for the Certificate d'Urbanisme (and other documents) which state what developments are allowable on the property and its land.

 

As a general rule of thumb a lender is going to take 33% of your monthly income, which should cover your monthly debt service or existing financial commitments, including your French mortgage and the life assurance premium. For French taxpayers, deduct your social charges from your monthly income. For other nationalities, you can use your gross monthly income but do not deduct tax.  There are very strict rules imposed by the Banque de France on all the French banks and mortgage providers. These rules govern the amount a person can spend each month on a mortgage. As stated above only one third of your monthly income can be used to service a mortgage on your main home (or rent payments if you are a tenant), any other mortgages, any loans, credit card repayments, and if applicable maintenance payments.

 

Most important is to know how much home you can afford and not begin a search without knowing this up front.  Establishing the specific price range you should be looking at and whether you have enough cash funds for the deposit and legal fees and that your income is sufficient to afford the monthly cost of your French mortgage. To find out the price point of homes you should be looking for, we can offer preliminary assistance and provide a price-point range, though we will not be running credit and other necessities that will be required should you want to apply for a French mortgage. 

 

Determining A Search Price - Our Broker Questionnaire.  We have a questionnaire to learn more about your specific wants and needs and shall be treated proprietary and confidential information.  Furthermore, it will NOT be passed on to any French banks or lenders. This Broker Questionnaire is designed to the necessary and precise information to advise you about the maximum amount of home and mortgage you can afford for your property purchase.  Whether we or another professional assists you in this search and process, the approximate monthly cost and minimum amount of deposit you will need is paramont to this process.

 

Keep in mind that unlike North America, French lenders do not provide ‘pre-approvals’ or ‘pre-qualification’ letters. With much competition for lenders abroad, lenders don’t want to spend time conducting research for these letters when there is no guarantee they will get the loan.

 

Mortgage Costs

Mortgage deposit - The minimum amount you need to provide as your deposit for a mortgage depends on your nationality, the country you live in and where you pay income tax.For tax payers in France it is possible to arrange a 100% mortgageFor UK and EU residents and tax payers the minimum amount of deposit is 15% of the purchase price.For residents and tax payers in non EU countries, the minimum amount of deposit is 20% of the purchase price.

Arrangement fee - All of the French banks and lenders charge arrangement fees. Most charge 1% of the amount of the mortgage, many with a ceiling limit of 1500 euros, although some do not have a ceiling limit at all, so you may end up paying 1% of the total mortgage.mortgagefrance.com will advise you of the arrangement fees and with one lender can offer a reduction of the ceiling limit.

 

The Three Essential Elements For Qualifying For A Mortgage

Sufficient income to service your mortgage. There is a very strict ruling about income and expenditure which is imposed by the Banque de France who regulate the banks - all the banks and mortgage providers adhere to this ruling without deviation.

Life assurance to cover the terms of your mortgage. Life assurance is mandatory to cover a mortgage. Most lenders, but not all, insist that their own in-house life assurance policies are used, and some will insist that cover for disability and/or incapacity to work is included in their policies.

Suitability of the property. Certain types of property are not acceptable for mortgage purposes - derelict barns, stone cabanons and wooden structures, will not be financed. Land can be financed, but only if the cost of a new build property is included and total renovation projects may cause problems.

 

When your file has been thoroughly checked and approved by an underwriter, the lender will request a Valuation of the Property.

 

Valuation - Life Assurance

Valuation.  The valuation is not a structural survey. It is merely a valuation agreeing that what your are paying for the property is worth the purchase price and the amount the lender is being asked to lend is acceptable to them.Once the valuation has been approved, the lender will submit your life assurance form for medical underwriting.

Life assurance. In France, life assurance is mandatory to cover the amount and duration of your mortgage. Most of the banks and lenders insist on their own in house policies because they will cover all the terms of your mortgage and are compliant with French regulations - existing life policies are not generally acceptable or taken into consideration. Some lenders insist that disability cover is included as well as life cover. The medical underwriters may ask you to have a medical examination or tests.

 

Should you be declined mortgage funds, because of financial information, or medical underwriting, or the unsuitability of the property, the lender will advise you and issue you with a letter which you can use as your proof to have your deposit refunded to you as agreed in the Compromis let out clause. Subject to approval of your financial status, the valuation of the property and acceptance for life assurance, an offer letter (offer preable du credit) will be issued to you.

 

Offer letter and Your Acceptance.  The rules about signing and dating your mortgage offer are very strict. There is a 10 day cooling off period. This is a legal requirement and allows you sufficient time to consider the terms of your mortgage before returning the documents to the lender by post. You must sign and date the offer letter after waiting 10 days but before 30 days have elapsed.  NOTE for a word of warning: If you get the date wrong, a new offer letter will have to be issued with another waiting period of 10 days. 

 

Some lenders will want their arrangement fee paid on acceptance of their mortgage offer and your life assurance policy will be put on risk from the date you signed the mortgage offer because you are now committed to the purchase and bear the responsibility of completing on the purchase. 

 

When the lender sends you the mortgage offer they also inform your notaire of the details of the mortgage. Completion date should be concluded within 4 months of receipt of your acceptance to the mortgage offer.

 

Getting ready for completion day (Closing)

You can now arrange a time and date for completion to take place.  A word of warning: It is your responsibility to instruct the notaire to request the mortgage funds from the lender.  It is NOT uncommon for people to forgot - and ultimately a waste of everyone's time and a reason for those trying to assist you to become annoyed with your 'forgetfulness'.

 

Once you know the date of closing, OR will be completing on your property purchase you will;

• Make certain that your French bank account is open and funds are transferred into account in time for the completion date

• Arrange for buildings insurance to be on risk from the date of completion.

• Provide details of the insurance policy.

• You will be sent a draft of the acte de vente (projet de l'acte) a few weeks before the completion date. It will contain much of the same information as in the original Compromis, but check it throughly. It will also state the date that you may move into the property.

• You will be asked to produce your birth certificate and passport together with marriage certificate and divorce decree if applicable.

• If you think you may be unable to attend the meeting to sign the acte de vente (final deed of sale) you can give a trusted person or friend a Power of Attorney (POA) or a mandat which authorises this person to act on your behalf if you unable to attend the actual signing.

• The acte de vente is signed by you (the purchaser), the vendor and the notaire. If both you and the vendor have different notaires, then only one needs to witness the acte de vente.

• If you haven't done so already, you will be expected to pay any outstanding fees and transaction charges.  NOTE: A word of warning: Don't forget to take your French cheque book with you.

• Once the acte de vente has been signed and witnessed, the notaire has to pay all the taxes, settle all the accounts of the purchase/sale and register the deeds and mortgage. A few months later you will receive a certificate informing you that the title has been registered. The original title deed is kept by the notaire, but he is able to make authorized copies for your personal records, lender, etc.

PART II

 

Finding Your Perfect Property.  With so much information readily available at the click of a mouse there are many ways to search for properties but here we offer links to every site imaginable. You can take as long as you need to search and plan carefully about the location and the type of property you choose. Is this going to be your main residence, second home, holiday home and possibly ‘let out on occasion’ or a property to be ‘let as an investment’ for the future.

 

No different from buying here at home, make a ‘wish list’ of the important features most specific for your needs, or your family. Including but not limited to the purchase price, the overall size and number of rooms, will you require a cave (garage), garden, terrace or balcony, etc.If we are assisting you with the search our Criteria Form will help us stay on track to find your perfect property.

 

Because it is so crucial to have an Estate Agent in France we will refer you to qualified professionals able to provide you with the service you might expect in the North America.

 

The Vendor and the Estate Agent. In France the process of buying a property is regulated at each step of the procedure, from the owner of the property placing it with an estate agent (immobilier) and setting the selling price.

 

At this moment a contract to sell (mandat de vente) is completed by the owner and the estate agent, clearly showing the owners price, the estate agents fees plus Vat (TVA) and the subsequent sale price of the property.

 

The scale of fees (barame des honorament) is strictly monitored and regulated and legally must be displayed at the agents premises.

 

You (the Purchaser) and the Notaire.   When you decide to purchase the property you should decide whether you will use the same notaire as the vendor or whether to appoint one of your own choice to handle the conveyance (cession)

 

     NOTE:  It's a legal requirement in France that all property contracts must be written in the French language and all money transactions should be in Euros. Any French property contracts that are written in English have no validity in France.

 

Making Your Offer And Signing the Sales Agreement.  Once you have found your property, made your offer and had your offer accepted by the vendor, you will THEN be required to sign a sales contract, the Compromis de vente (sometimes called the Promesse de vente).

 

The Compromis de vente.  The Preliminary Sale contract (Compromis de Vente), is very important as all the legal aspects of the sales agreement are fixed at that time. The Compromis de Vente is binding for both the vendor (seller) and the purchaser (acheteur). 

• For the purchasing an existing property. The property agent can draft the Compromis de vente, but it advisable to use your notaire. His advice is essential regarding future obligations, as both parties involved rely on the clauses and conditions set out in the Compromis de vente. It will be written in French, but may have an English translation.

• For the purchase of property to be built. The most common type of contract for the Sale of property for future completion (Vente en l'Etat Futur d'Achievement or "VEFA"). Both parties also sign a reservation contract (contrat de reservation), which outlines the price of the completed property, technical specifications and the dates and methods of payment. After paying a deposit of 5%, you will then need to sign a deed of sale, which contains the binding agreement of both parties on the various terms of the preliminary contract. It is at this stage that the vendor transfers ownership of the property to you, the purchaser.

 

Whomever is named as the purchaser(s) and if you are intending to use mortgage finance, the same name(s) must appear on your mortgage application. The Compromis is a legal contract, you should read it carefully and consult your notaire before signing it to check that all the details and conditions are correct, such as...

• Details and identities of the vendor and yourself (the purchaser)

• A full description of the property

• The surface area of the property and land

• The purchase price, the breakdown of fees and who will pay each fee

• Details of the notaire and sales agent

• Details of any fixtures and fittings included in the sale

• Results of reports on asbestos, lead and termites

• Details of your mortgage, the date of when you should have your mortgage offer and the date of completion

• Any let out clauses (conditions / clause suspensives) and the penalties that will be incurred by you or the vendor if completion doesn't take place

 

The let out clauses.  For you, the purchaser, the clause suspensives protect the deposit you gave to the notaire or agent as part of your agreement to purchase the property.

 

The most usual is a clause stating that your agreement to purchase is subject to you obtaining mortgage finance.

 

Other clauses can be inserted, such as the vendor having to carry out necessary repairs or subject to the dimensions of the property corresponding to what is detailed in the Compromis, and this is where expert legal advice is useful in the negotiation of these clauses.

 

Signing the Commpromis de vente.  On the day of signing the Compromis de vente you will be required to pay your deposit (usually 10% of the purchase price) to the notaire or the agent.

 

Once you have signed the Compromis de vente, the clock starts ticking. You have got a set date by when you should complete on the purchase.

 

You are given a 7 day cooling off period (7 days in which to change your mind) this is the best time to instruct for a structural survey / inspection. If you do change your mind within these 7 days, you will get your deposit back.

 

NOTE:  A word of warning:  Even though you may have a clause suspensive in the Compromis stating your agreement to buy is subject to mortgage finance, if you do not make reasonable efforts to obtain mortgage finance in time, then you could lose your deposit. You will probably be asked to produce a letter from the bank who declined the mortgage.

 

IMPORTANT: In all cases, if a mortgage is being sought the sales contract must contain a clause stating that mortgage finance is being sought (condition suspensive).

 

During the following weeks, the notaire will collect and verify all the documents such as property titles and mortgage documents. After which he will request the mortgage finance from the lender. When all that is completed you will be required to sign the final sales agreement (Acte de Vente).

 

PART III

 

THE METHOD

 

Meaning how properties are valued. This is somewhat confusing and another reason why you should only use a trust referred broker to represent your interests.

 

NOTE: After reading this along with details on French Property Purchases, if you believe you are getting in over your head - refrain from purchase and lease your ultimate property. At least for the first six months to one year.

 

When searching ANY French real estate website the price displayed is always the net selling price* and NOT the purchaser net price. With that said, you will on occasion see a listing that clearly states ‘all fees included’ but that is rare.*Net selling price does not include the amount of furniture and the agency commission (about 5%).

 

It should also be recognized that statistics published in the province, regions, departments and administrative districts usually correspond to median prices rather than average prices.

 

Unique in France, with more than 9 million references, the base of real estate Notarial references managed by PERVAL SA was created in 1990 to allow the practice of real estate appraisal by comparison, and is the only proven method used by the courts. Through volunteering notaries, It identifies real estate sales of all types (buildings, houses, apartments, land, business premises, agricultural and agricultural property, garages) and indicates the actual transaction (closing) prices. The data allow for more than 15 years by the Notaries of France to produce statistics and price trends.

 

The first indexes of property prices were calculated in partnership with INSEE in 1996. The field of observation covers the new and old apartments, the old houses and their land which represents over 85% of sales of real estate houses. Trends for new homes cannot be studied because this market is not processed by notaries as such: it is in fact done for the vast majority of construction contracts.

 

Consequently, only the homes sold within 5 years of their completion are recorded in the database PERVAL. Transactions included in the calculation of statistics concerning properties:

- Unoccupied at the time of sale (or occupied by the seller)

- Acquired outright by a sale of OTC (over the counter)

- For strictly residential use Life annuity properties ("viager"), transactions of atypical properties, such as servants' quarters, lofts, workshops, mansions or châteaux and acquisitions made by real estate professionals are excluded.

 

For a given type of property, several geographical levels can be observed: region, state, district, city, neighborhood, vicinity of an address.  The statistic is computed only if the number of properties recorded in the database for the study PERVAL period is greater than or equal to 20. Markets in all regions and provincial departments are observed as well as the DOM (overseas territories).  In old houses and apartments, there are more than 600 cities that are available with a detail by district for about 80 of them.

 

Observed prices are exclusive of transfer taxes but including VAT for the new build properties. They correspond to the seller's net price (not including the value of furnishings and the agency commission). Note: from January 2010 to August 2011, only purchasers' prices (including the value of furnishings and the agency commission) were presented on this site.

 

The statistics published in the province, regions, departments and administrative districts correspond to: A median price per square meter for apartments. A median sales price for homes and land.

 

The median is the middle value that divides all prices observed in the two groups of equal strength:

50% below and 50% below. In cities, neighborhoods and around an address, the price range is displayed:

The price corresponds to the first quartile of the price per square meter for apartments and the price for the sale of houses and land. The first quartile is based on the first level of prices obtained after elimination of one-quarter of the sales at the lowest price.

 

The maximum price corresponds to the third quartile of the price. The third quartile of the price is the last price level obtained after elimination of the corresponding quarter of sales at the highest price. The statistics are updated each month. Given the time to provide the real estate databases, statistics appear with a lag of three months. 

 

Calculating an average price gives a snapshot of the level of prices in a market in a given period. It is an indicator of the expense for the buyers, which is closely related to the size, the intrinsic qualities or the environment of homes sold during the period. Thus, the average price increases if these criteria are more favorable one year compared to another.

 

If the characteristics are identical, the price may not have changed or changed in a different way. To remedy this problem, in partnership with INSEE the notaries have developed a tool for monitoring the evolution of the market: the price index. They have been using this method in Paris since 1992 and in the province since 1996.  It focuses only on old houses and old apartments for tax purposes, that is to say more than five years or having undergone a second mutation in the five years from completion.

 

The index measures the evolution of a reference fleet sold between 1998 and 2001. The methodology is based on so-called hedonic econometric models explaining the price of housing in terms of its characteristics. Using these models, the value of each property of the reference fleet (whose characteristics are fixed) price of the current period is estimated. The index measures quarterly changes in the value of the park by taking as 100 the fourth quarter of 2000.Transactions included in the calculation of indexes for the following properties: - unoccupied at the time of sale (or occupied by the seller); - acquired outright by a sales agreement; - for strictly residential use.

 

Châteaux in France considered atypical properties. To avoid atypical transactions, the statistics exclude non-standard properties such as servants' quarters, lofts, workshops and châteaux and acquisitions by real estate professionals. The price used is the net selling price, excluding transfer taxes, notary fees and agency commission. The index is calculated every quarter but it is on an annual sliding scale, that is to say, it is based on the change in a period over four quarters. Given the power of the base, two indexes are calculated each quarter: a provisional index and a final index. Price indexes are presented by geographic areas: provinces, regions, departments.

 

And even with all this, be careful how you interpret the prices. Remember, they are out-of-date, are net of agency fees, furnishings and 'cash under the table' (which is illegal, but done) and use a median, rather than average of the quality of the properties in any one given area.

 

As in any case, the comparable properties for sale on the market are the true indicators of price! And of course, it's still based on 'what the market will bear!'