A request for a mortgage loan is far from being systematically granted by your bank. Indeed, banking institutions have recently tightened the conditions for granting a mortgage. In this rather unfavorable context for obtaining a house or apartment loan, how can you avoid a mortgage refusal from your banker?
Why is Your Bank Refusing You a Mortgage Loan?
Before giving you the keys to avoid being refused a mortgage , know that if your bank refuses to grant you a mortgage, this does not mean that all banks will adopt the same attitude. Only, to increase your chances of success, it is important to understand on what criteria your bank grants or not a mortgage .
The High Council for Financial Stability (HCSF) requires banks to comply with certain criteria such as the debt ratio, the borrowing capacity, the remainder to live which must not exceed a certain limit. However, banking institutions also have their own risk management policy since in their decision, they consider the management of personal finances and professional stability as determining criteria.
1 Too High a Debt Ratio
Your debt ratio determines the amount you can reasonably devote to repaying your mortgage without unbalancing your budget. The debt ratio is the ratio between your expenses and your income applied to a percentage.
DEBT RATE = (CHARGES / RESOURCES) × 100
The charges taken into account in the calculation of a debt ratio are:
- the monthly payments of your loans being repaid (car loan, work loan, personal loan, revolving loan, etc.),
- the payment of alimony,
- the rent (if you are the tenant of your accommodation).
The income considered in the calculation of your debt ratio is:
- net salaries before withholding tax (including a 13th month or more),
- land income up to 70% of their amounts (if you own one or more rental properties),
- non-salaried professional income,
- alimony received.
Some banks, to know your debt ratio, take into account in the calculation your bonuses and variable part received during the year.
EXAMPLE :A couple receives 3000$ of income per month. They took out a car loan ($250 per month) 2 years ago. Currently, they are tenants of their apartment (720$ per month) and plan to acquire their main residence. Their debt ratio is 32.33%: ($250 + $720) / 3000 × 100.
2 Insufficient Personal Contribution
The personal contribution corresponds to the sum of money held in savings (on a tax-free booklet, life insurance for example) that you plan to inject into your real estate project to avoid asking your bank to finance this sum. Generally, the personal contribution is used to finance the costs associated with your project: notary fees, administrative fees and the deposit.
To be acceptable, your personal contribution must correspond to at least 10% of the total financing of your real estate project . Some banks refuse to grant a mortgage to people who do not have a minimum contribution. Indeed, some banking establishments wish to finance exclusively the amount of the property and not the entire real estate project.
3 Poor Financial Management
Ask yourself what is the state of your current bank account: Have you been debited from intervention commissions or fees for rejection of direct debits? Have you often been overdrawn in recent months? If so, take a close look at your expenses (and your resources) and put a plan in place to better manage your finances.
Indeed, poor management of your accounts is a bad indicator given to your bank. This may decide not to grant you your home loan because of these numerous payment incidents on your account lately.
For your mortgage application, you will need to provide your banker with your last three account statements. Your bank will analyze your finances to determine your remaining life.
If today you are charged aggies (interest on overdrafts), your adviser will think that with a mortgage, you will not be able to repay the loan. The bank will therefore refuse to lend you the funds necessary to finance your real estate project .
4 An Unstable Professional Situation
When you meet your banker to talk to him about your house (or apartment) project, the first question he will ask you is: “What do you do for a living? Are you on CDI? “.
Professional status is an important criterion for the bank when studying your real estate file . A CDI (or even two if you borrow with your spouse), is reassuring for your banker because it demonstrates the stability of your income for the years to come.
On the other hand, if you are self-employed, a business manager, on a fixed-term contract or on a temporary basis, your bank will take into account your income over the last 3 years to determine whether or not it grants you your mortgage.
The Other Criteria That Influence Your Mortgage Application
1 Your Age
A bank is not reluctant to lend to young people so that they can access property. On the contrary, your banking institution loves first-time buyers because they are above all future customers with a long-term relationship.
Provided that you meet the criteria for obtaining a home loan and that you are solvent, your bank is ready to finance your home purchase.
On the other hand, for people over 65, it is difficult to borrow beyond this age. Indeed, the duration of the loan will have to be shortened and you will have to take out good borrower insurance (with death/disability guarantee).
Another solution for people of advanced age who wish to buy real estate on credit: take out a mortgage loan. Your property is pledged in return for the sums lent by your bank.
2 Your Health Status
Your health will also play a role in whether or not you are approved for a mortgage since your bank will require you to get borrower insurance to ensure that your loan will be repaid in the case of your death, incapacity, or loss of autonomy.
The insurers will decline to cover you if they determine from the health questionnaire you previously completed that the risks involved are too high. The bank will thus decline to provide you the money you need to finance your home improvement.
3 Your Place of Residence
The place where you live is also an element of appreciation taken into account by your bank. Taking out a mortgage in France as a non-French resident, even if it is not a determining factor in granting your loan, can be difficult.
Indeed, except in special cases, you must be domiciled in France to be able to borrow a sum of money for a property purchase.
4 Your Nationality
If you are a foreign European citizen, there is no reason for a bank to refuse you a mortgage. On the other hand, if you are a foreigner outside the EU, the bank will ask you to provide your residence permit and proof that you will be staying in France for the duration of your loan. Condition sine qua non for it to agree to lend you.
Our Advice for Obtaining a Mortgage Loan Agreement
After you have carefully examined the conditions for granting a loan to build a solid real estate file , follow these tips to avoid a refusal of credit:
1 Make an Appointment With the Banks
Play the competition and make an appointment with the main banks near you. This will allow you to know their rate and their loan conditions. In addition, you increase the chances of obtaining a credit agreement for your real estate project .
During this appointment, bring your complete real estate file:
- your ID
- your last tax notice
- proof of address
- your last 3 account statements
- your last 3 pay slips
- the amortization tables of your current loans
2 Study Your Budget
To help you get a home loan agreement , try to negotiate your loan with several banks but also estimate your budget and calculate your borrowing capacity . Thus, we recommend that you do credit simulations on the net. Thus, you will know exactly, depending on your resources and your expenses, how much can borrow and for how long.
3 Promote the Advantages of Your Property to Your Banker
Valuing your property with banks to show them the potential of your property purchase. To increase your chances, highlight the strengths of your property, such as its location, real estate demand in the area, etc.
4 Call a Real Estate Broker
Intermediary between you and the bank, a real estate broker seeks the best financing solutions from different banking establishments. He accompanies you in your real estate project, from the first loan simulation to the signing of your property at the notary. Finally, he negotiates for you the best conditions for obtaining a loan (rate, duration, etc.)