Real Estate Purchase: Is The Contribution Essential?
Are you looking for your dream house, and are you beginning to imagine how to fund it? For you a bank loan will most often be essential and it requires flawless preparation to obtain it. As well as a amount of money, which is considered a personal donation, from your own wealth. Let us go back to the latter’s position and its relevance in the current economic context.
Why a personal contribution?
The contribution helps, above all, to reassure the bank, in addition to the mathematical considerations related to your repayment potential. This financial implication shows you’re convinced of the seriousness of your approach and your ability to repay the loan you’ve requested. Moreover, your capacity to save reveals that you have good money management: you’re not going to embark on a loan that exceeds your resources and is eventually difficult to repay.
Your contribution must represent a minimum of 10 percent of the total value of the acquisition of real estate to be taken seriously. It thus assures the bank that notary fees and the guarantee fund can be financed by you. A greater investment, such as a lower loan rate, would also allow you to negotiate more favourable terms.
By justifying an exemplary record, it is still possible to borrow without a contribution: a request that produces the lowest possible debt ratio and a constructive management of your bank accounts.
The sources at the basis of the contribution
Personal savings
You spend less than what you earn and every month your bank account gets richer: you are a good student and (in your current account or in dedicated accounts such as the PEL) you build up savings. In order to eliminate or reduce unnecessary costs, if this is not the case or if you want to maximise your saving capacity, consider sorting out your expenses. Pay back your consumer loans (and stop contracting any), check, for example, your telephone and electricity contracts.
The savings can also come from your company by bonuses and savings plans for workers. All these steps can let you make a real contribution in a couple of years.
The capital gain
A second method of freeing up funds to purchase one property is selling another. In order to support the purchase of your new property, the capital gain you will get from it, or the difference between the sale price and the amount you have left to repay, will be used.
Make a fair estimation of how much it would get you if the property has not yet been sold. Then you can better measure the budget for your research that you have available.
Other loans
Before selling the old one, if you find your new home, you may need to take out a bridge loan: the bank believes that you are really going to sell the home and offers you a loan for the sum you take out. Please note that the bank generally uses a selling price corresponding to 60 percent of an estimate made by a real estate professional, for the sake of protection. This loan is used as a down payment to purchase your new one.
Often known as donations are supported grants such as the zero-interest loan or the Housing Action loan.
The contribution in the current banking context
The coronavirus health crisis and the resulting financial insecurity for many people have obviously impacted the banking credit policies. An economic crisis was already forecast in advance, however, and guidelines for tightening credit conditions were already issued in 2019. They are in order more than ever at the end of 2020, and the best files will be reached by the banks as a priority.
A contribution greater than the aforementioned 10% will then prove to be a key asset for fast and attractive borrowing conditions. Otherwise your request may be rejected or postponed in favour of more rigorous situations. And the higher your contribution, the less harmful it will be for your profile.
A personal contribution equal to 30 percent of the total sum of the acquisition (or more) would ensure that you listen to your banking partner in order to offer an idea. If your file still has one or more weak points, it will be critical. Lastly, a more significant contribution decreases the volume of the loan and thus the debt ratio: a rate above 33 percent would have no chance of being accepted at the moment, while the remainder to be lived is another important data for the analysis.
In these unpredictable times, to borrow for a real estate purchase, bring the odds in your favour: take care of your management and optimise your contribution by all means. In the event of difficulty, you could be provided with the necessary funds by a personal loan given by one of your relatives without constituting any known burden on your bank. All you have to do is get started!