France, known for its rich culture, breathtaking properties, and vivid cities, welcomes more than 30 million foreigners annually. Some love it so much that they embark on purchasing a forever pied-a-terre. However, this exciting time requires more than just finding the perfect property; it necessitates a sound understanding of the financial landscape. From navigating mortgage options to understanding the legalities, financing property purchases in France demands careful consideration. There are many restrictions on how and if French banks will approve foreigners for loans, especially Americans. So here is all you need to know.
We recommend working with one of our trusted loan brokers, who will oversee the process and give you an initial overview of the resources and possibilities available. The standard broker fees typically represent about 2.5% of the amount borrowed. Although a loan broker can provide comfort and give initial insight into the probability of obtaining local financing, the promissory note is vital to receive this approval, and only after the promissory note is signed can a bank approve the request. For foreign buyers, anywhere from 25-35% of the purchase price is typically required as a downpayment at the start of the loan process.
Residential loans are most commonly distributed within a 15-20-year span, although durations may vary based on individuals. Regarding inputs, the loan to value is roughly 90-100%, non-resident Europeans’ value is up to 85%, and non-resident Americans’ value is up to 75%. To qualify for a loan from a French bank, you must provide proof of income or any of the following: salary, K-1 income, passive income, bonus payments, or pension income. It is important to note that the total credit outgoing must remain below 33% of the borrower’s disposable income.
Deciding which bank you will work with can be challenging with the restrictions on foreigners. An excellent measure to remember is that the retail banking market is used for properties’ price points from 500,000 € – 2 million €, while the Private banking sector is in the 2-10 million € range. The cost of financing is a little more than 30-50 basis points. If you plan on using a private bank, there are ways to maximize your money and investment. Many private banks will loan you 100% of the quantity you are looking to receive as a loan if you deposit a certain amount of assets in their banks. This efficient way of turning assets into loans is quickly becoming popular because if the property is estimated at 1.3 million €, then there is a property wealth tax, while if there is 1.3 million € in assets, then there is no longer an obligation to pay that tax.
Once the property has been decided and financing is considered, obtaining a pre-qualification takes roughly 72 hours. The approval will be secured within two weeks after executing a preliminary sale agreement. Lastly, five to six weeks is expected to complete the onboarding process and abide by the regulatory cooling-off period.
Below are frequently asked questions answered by the MR Agency Real Estate team and a renowned loan broker based in Paris with a global clientele that we work closely with to offer the best experience to our clients.
1. Can I obtain financing if I am a retiree?
There is certainly a plan for everyone when it comes to purchasing property in France with the help of financing; however, there is certain important information to know in this case. Whether or not you are eligible for funding is not measured by the age at the time the loan is given out by the bank, but rather by the age you will be when the loan is paid off. Banks typically do not give out loans to individuals who will be older than 75 years at the conclusion of their loan.
2. What is the most significant issue you’ve seen when foreign buyers seeking local financing navigate when buying in France?
One of the most significant issues foreign buyers face when buying property in France is obtaining a pre-qualification. This ensures that you are eligible for financing and that your personal information and all the legalities of the property are correct. It is crucial to inform yourself of the laws regarding property purchase transactions and not base the process on your native country’s policies. In some instances, banks in France have had difficulties and often require prior experience with Americans to successfully service a client correctly. This is why it is highly advised that you invest time into finding the perfect match for you and consider the help of a financial broker.
3. How are American trust funds recognized as financial assets? Can a client loan against their trust?
“Assets located in Trust Funds are indeed recognized. When this is the case, we’ll need to understand whether the TRUST is revocable and who the Grantors, Trustees, and Beneficiaries are. European lenders cannot lend to a TRUST registered in the US. However, assets placed in a TRUST can be used to guarantee a euro-denominated home loan.”
4. Why does it seem more complex for foreigners in France than other foreigners (FACTA)?
“European financial institutions on-board US persons must abide by rules governed by the FATCA (Foreign Account Tax Compliance Act). This can be perceived as burdensome, and, as a result, some banks prefer to avoid establishing relationships with US clients.”
However, it’s important to note that this does NOT mean financing in France is not obtainable, rather it needs to be guided by trusted and experienced individuals such as loan brokers, real estate agents/agencies, and notaries.
Contact the MR Agency Real Estate team for any additional information and/or questions. Our team will be happy to assist you! contact@mragencyrealestate.com or give us a call at +33 6 19 63 98 26.