Even though buyers are ready to dive in, there still exist some uncertainties regarding inflation, interest rate increases, and the wear rate, which disqualifies certain candidates. The most affected are first-time buyers, who do not have a significant down payment or, due to limited professional experience, do not meet the prerequisites for obtaining a mortgage. Therefore, before jumping in, take the time to read this guide to understand how to prepare your budget and your file for your real estate purchase.
Mortgage: What is the personal contribution and how to constitute it?
The personal contribution is an amount that the buyer already has available to finance their project. For first-time buyers, the contribution can come from:
- your personal savings,
- a Zero Rate Loan,
- an inheritance or a donation.
There is no obligatory minimum or maximum contribution, however, the larger the contribution, the more banks will be willing to grant financing. Lending institutions generally require a contribution of at least 10% of the total amount of your purchase. These 10% actually correspond to ancillary costs, like notary fees for example. Note that the larger the contribution, the more interesting the rate offered will be.
Mortgage rates, wear rates: understanding everything
Borrowing interest serves to remunerate the institution that will grant the credit. For this, a rate is applied to the total amount borrowed, and can be:
- fixed, meaning it will not change throughout the loan's duration.
- variable (or adjustable), meaning it will follow variations, either up or down, during the loan's duration.
The rise in interest rates highlights the issue of wear, a system supposed to protect borrowers from abusive banking practices. The wear rate corresponds to the maximum legal interest rate that credit institutions are allowed to practice when granting a loan. With a calculation method poorly adapted to reality, some households were unable to borrow this year.
What criteria impact the amount of a mortgage?
The debt capacity indicates the amount of debt you can take on without jeopardizing your financial security. Expressed as a percentage, it varies according to your income and expenses and should not exceed 35%.
Long-term indebtedness is more costly. Even if the monthly payments are lower, the interest rates are higher than for a shorter loan. Currently, it is not possible to borrow for a period longer than 25 years.
The professional situation is also a very important criterion for obtaining financing. The more stable your situation, the more you reassure banks of your ability to repay your mortgage. Accordingly, freelancers or those on fixed-term contracts will have a harder time getting approval.
The debt capacity can only be increased by two factors: your fixed income and your fixed charges. For example, if your income increases and your expenses remain fixed, your capacity will increase.
Choosing a suitable real estate property
New housing offers solid guarantees, in addition to benefiting from reduced notary fees. It's also investing in a property that does not require immediate work. However, the purchase price is higher. Conversely, older properties offer charm with a lower price, but renovations might be necessary, with higher notary fees. In any case, the search for a property is preceded by two steps:
- evaluating your purchasing capacity, as previously seen.
- defining your needs, that is, outlining your project.
For this, determine precisely the ideal property, your current and future needs. Do not hesitate to rely on the advice of a real estate professional, who will advise you according to your desires.
First-time buyer: consider additional costs to succeed in your real estate purchase
Consider other costs associated with buying a property, such as notary fees, insurance fees, etc. When buying for the first time, it is possible to orient towards a property to renovate, to limit purchase costs. Under these conditions, you must meticulously take into account maintenance and renovation expenses.
If you plan to buy a property in a condominium, you must also think that some costs will need to be spent in the coming year: syndic fees, condominium charges, etc. Similarly, do not forget local taxes like property tax for example.
Aid and subsidized loans for your first real estate purchase
The French State has planned aids to allow young people to buy their first property. For example, we can mention:
- the Zero Rate Loan. Intended for first-time buyers, the PTZ is a loan without interest, granted in addition to another mortgage. It can be considered as a personal contribution. Its amount varies according to the nature and location of the property, the number of people intended to live there.
- the Action Housing Accession Loan. If you are an employee of a private sector company incorporating the system, you can benefit from a loan at a preferential rate.
- the Social Accession Loan. The most modest households can benefit from a PAS, granted with an advantageous interest rate.
Note that some regions, or even some municipalities, may grant financial aids for first-time buyers who wish to buy or build their main residence. Do not hesitate to consult the website of the Departmental Agency for Housing Information in your area.
Buying a first property is often a source of stress. It is not uncommon to feel like you are moving forward blindly or jumping into the void without a safety net. The solution is to meticulously prepare your project and your candidate file, showing that you know how to save and manage your expenses. The support of a broker can be very useful, as they will be able to benefit you from their experience and their network of contacts to obtain the best financing offers.
