Being a non-resident and obtaining a mortgage: what you need to know!
You are a non-resident and you plan to buy a property in France using a real estate loan, it will not be easy but it is possible. We tell you everything so that you know what to expect and that you put all the chances on your side with your banker.
The impact of your country of residence. Before finding a bank that accepts to work with non-residents, check that your country of residence is not blacklisted or grey-listed in the EU.
Please note: The United Arab Emirates has been removed from the list of black/gray listed countries in October 2019.
The overall objective of the EU list is to improve good governance in tax matters globally and to ensure that the EU’s international partners meet the same standards as the Member States. The rigorous process of selecting countries is used to assess that they meet three main objectives.
Transparency: are international standards for information exchange being met?
Fair tax competition: Does the country have harmful tax practices?
Real economic activity: Does the country’s tax rate favor artificial tax structures?
If you live in one of these countries, it will be impossible for you to start a relationship with a French bank.
Finally, and for a different reason, if you are a tax resident in the United States, the process will be difficult (but not impossible). Most of the French banks are afraid of the American FATCA tax regulation which consists in giving a complete transparency of the accounts of their customers domiciled in the United States; requiring a big work of reporting and potentially of heavy sanctions at the key.
If your country of residence has not yet been cited, you still have a good chance of obtaining financing in France, but the road is still long.
The real estate loan, a product of appeal. The key rates applied by the ECB (European Central Bank) impact interest rates and make real estate loans less and less profitable for banks. Not being the most margin generating product, banks use real estate loans as a loss leader to attract new customers.
Once a client, you domicile your accounts with your income in your new bank, you « consume » banking products such as credit cards, savings, insurance and this is what allows the bank to regain an acceptable level of profitability.
The non-resident, not very interesting because not very profitable.
A non-resident will not use his bank account in France with the same intensity as a client residing in France, he cannot domicile his income there (although it is sometimes higher than French salaries) and therefore will generate very little margin for the bank.
Quite often, the bank will refuse to enter into a relationship or will not hesitate to ask for additional considerations; these may include a trip to France for a physical meeting, the opening of a current account, a savings account or the taking out of loan insurance within their establishment… There are even banks that ask the client to take out a package with security cameras in order to be able to move forward with the property project.
Finally, the bank may offer you two options to compensate for the margin shortfall:
A loan with an interest rate higher than the average market rate and with a significant contribution
A credit with a competitive interest rate but with a collateral in the bank’s accounts of between 30% and 60% of the value of the credit requested
The first step in validating a credit file: compliance.
The Compliance Committee’s role is to analyze the potential risk of legal or administrative sanctions that may be associated with non-compliance with the rules set by the CRBF (Comité de la réglementation bancaire et financière). The origin of the funds and the constitution of the client’s assets are verified to ensure that there are no links with money laundering, arms trafficking, drug trafficking, human trafficking or any type of crime, particularly in countries where there is an embargo.
Also when faced with a non-resident file, French banks are confronted with several difficulties. For example, the warranty documents usually required are more difficult to check. Foreign companies do not necessarily issue pay slips like in France, and these are sometimes very (too) brief. Also, in the event of a dispute, the banks are in a more delicate position. Prosecution is often uncertain outside the territory.
As you can see, whether you have very substantial financial assets or a very good income, if your profile is not validated by the compliance committee, there will be no positive outcome with the bank in question.
The second step for the validation of a credit file: the credit committee.
Finally, money will be involved, but only if you have signed a compromise, there will be no studies if the project is not completely committed! The banker will ask you to provide all the elements that will allow him to determine your « living expenses », i.e. the money you have available after subtracting your expenses (taxes, rent, loans, pensions, etc.) from your income (salaries, rent received, dividends, interest, etc.).-The banker will ask you to provide all the information needed to determine your « living expenses », i.e. the money you have available after subtracting your expenses (taxes, rent, loans, pensions) from your income (salaries, rent received, dividends, interest). In the end, a debt ratio will be determined by integrating your monthly payments if the loan is accepted; a debt ratio that would exceed 33% would normally be refused by the credit committee because it would be considered too risky, even if there is a certain amount of tolerance when you put in perspective the mass and the rate of the rest to live on.
Note here that this process is that of the so-called network banks, a different approach in the analysis of the profile can be considered if you are in discussion with a private bank that will propose different credit structures.
If you pass the credit committee stage, it means that you are at the end of the line, the hardest part is behind you.
The commercial proposal and the finalization of the credit.
The banker will then send you a commercial proposal with the required counterparts. Some of them are negotiable at the margin and others not, it all depends on the bank which knows that it is in a strong position because it is not easy to find several proposals when you are a non-resident.
It is also important to know that the interest rate of the credit can evolve during the constitution of the file, the latter will be validated only when the bank will have recorded all the documents and will have obtained a final validation allowing to generate a letter of comfort.
As you know, the bank is looking for margin and if it makes you a proposal it is to develop the commercial relationship in the medium term; you can also make promises of business development to negotiate the conditions of the credit even if it is sometimes difficult to contractualize things, a gentleman’s agreement will do…
By adding up all the steps, we realize that very few banks in France will agree to finance your project and this is also why using a broker will not only save you time but also money because you will benefit from his agreements made beforehand with the bank. At WALDORF PRIVATE OFFICE, the cost of our financing service is largely offset by the gains we will have allowed you to make, both temporally and financially.
A complete credit process takes about 10 weeks, which is why there is a 3 month delay between the day the promise to sell is signed and the day you become the owner.
Anticipate the preparation of the elements which could be required by the bank, that will make you gagner of time and will avoid you an useless stress in the last line, especially after this course of the obstacle course.