Credit application : what you need to know

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The credit application is an essential step in order to conclude a real estate transaction. It is as long as it is complex. Indeed, in the vast majority of cases, becoming a homeowner requires obtaining a real estate loan from a bank, with all the documents to provide, guarantees to present and precautions to take. This section of our Practical Guide to Mortgages tells you everything you need to know before you apply for a mortgage.

Applying for a loan: how much can you borrow?

Before you even begin to look for a home loan, you need to calculate how much you can borrow from your bank. This amount is determined by what is known as your "debt capacity", i.e. the maximum amount you can be expected to repay each month, and by the interest rate of the loan which will determine the total amount of your loan.

The debt capacity

Financial institutions are very attentive to the question of debt capacity when you apply for a loan. In principle, it should not exceed 33% of your income, i.e. one third of all you earn.

The remaining 67% is considered as the "rest to live on", i.e. the amount of money needed each month to live adequately. It is essential to go through this calculation to estimate your loan. To do this, use the Vousfinancer simulator which will help you calculate the maximum amount of your monthly payments, so the total amount you are able to borrow, before applying for a mortgage.

Find the right interest rate to get an interesting real estate loan

Of course, the amount of money you will be able to borrow depends greatly on the interest rate you can get. The interest rate determines the final cost of your loan, based on the amount of money you will have to pay the bank in order for them to agree to your mortgage application.

The interest rate depends on two factors:

The average rates at the time you apply for a loan;

The leverage you have to negotiate a loan to your advantage.

The rates being very changeable and the banks more and more demanding, the best solution consists in going through a real estate credit broker. This one will have for goal to find you the best solution according to your personal and professional situation.

Obtaining a real estate loan: the banks' acceptance criteria

Once you know the amount you are able to borrow, you have to convince your bank to lend you the sum in question. A step which is never an easy task. For a credit application in due form, your bank will oppose several economic and professional criteria. Here are the three most important ones to take into account when putting together your real estate loan application: your personal contribution, your professional situation and your savings.

The personal contribution, essential for any request for real loan

The personal contribution is a sum that you have in your own possession and that you inject in your real estate credit. More and more banks require their customers to have a personal contribution for any request for credit: it is at the same time a safety for them, and a proof of the financial seriousness of the household. Moreover, this sum is generally used to pay the notary fees and/or the agency fees.

In general, the personal contribution must correspond to at least 10% of the total amount borrowed, i.e. 20,000 € for a loan of 200,000 €. The higher your contribution, the more you will be able to negotiate your interest rate downwards and thus obtain a real estate loan under the best conditions.

The professional situation

Another essential criterion for a real estate credit application: your professional situation. We know how difficult it is to obtain a mortgage with a fixed-term contract or any other precarious contract, or if you are a company director or self-employed. In short, it is better to have a certain job security to be able to benefit from a loan.

The advantage of a household is that it borrows as a couple: do not hesitate to give priority to the one of the two members of the couple who has the most favorable professional situation. For this credit application criterion, income is not the issue: it is safer for a bank to lend money to a person with an open-ended contract who earns a modest living, but who has a better chance of keeping his or her job, than to a company director who earns four times as much, but without a safety net.

Savings, a proof of your financial seriousness

For any real estate loan application, one of the major criteria of the bank is to prove your financial seriousness. In order to prepare your credit application, you should therefore :

Not to have had an overdraft during the last 6 months

Not to have any other credit in progress (affected or not)

And of course, to have solid savings. The fact of having a well-stocked "Livret A" or of having placed money in a PEL (Plan Epargne Logement - which will serve as your personal contribution) or in a CEL (Compte Epargne Logement) will allow you to demonstrate to your bank your financial seriousness.

In short, before applying for a loan, it is better to have been an ant than a cicada!

Financing aids

Let us add an optional criterion which will make good your file of request for real estate loan: the helps to the financing of which you can profit. If you are eligible for a zero interest loan (only for first-time buyers) or any other form of subsidized loan (1% housing loan or other), don't hesitate to emphasize this to your bank.

The different fees to take into account for your real estate credit application

Finally, one last point: your loan application should not only take into account your debt capacity and the monthly payments you will have to repay. Obtaining a real estate loan generates a lot of additional costs that you don't immediately think about, and which are added to the amount of the loan or which are to be paid at the time of the signature of the loan offer.

Fees to be paid immediately

Some fees are to be paid immediately upon acceptance of your real estate loan application. Among these fees are the mandatory guarantees (mortgage or surety, protections taken by the bank to cover itself against possible unpaid debts) and the file fees (representing approximately 1% of the capital borrowed, these fees are negotiable).

Don't forget the notary's fees! If the notary plays an essential role in your transaction, his fees are also part of the amount to be paid when obtaining a real estate credit.

The expenses diluted in the real estate credit

As for the indispensable insurance, its cost is diluted in the repayments of the real estate credit: it is thus necessary to take it into account in the calculation of the total sum to be borrowed at the time of your credit application.

If it is essential, the real estate loan insurance is not however obligatory. But no bank will lend you a penny if you have not taken out an insurance policy that includes certain minimum guarantees, in particular guarantees against the death of the borrower or his permanent disability. You are then free to add additional guarantees to protect yourself against periods of unemployment or temporary work interruptions.

Finally, note that since the Lagarde law, it is possible to decline the insurance offer of your bank and prefer a contract taken out with a third party. This is called the delegation of insurance, and this solution will generally cost you less than accepting the group contract of the bank. Other laws have been added to this, notably the Sapin 2 law, which allows people who have benefited from an offer since February 2017 to be able to cancel their insurance every year.