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BUYING
WITH A MORTGAGE
Introduction
This
issue of the week looks at the way that a purchase works at the different
stages when being financed by a mortgage secured against the property
being purchased in
France
, outlining some of the pitfalls and issues that can
arise as well as cost implications.
Before
viewing property
It
is advisable to discuss financing options prior to viewing properties.
Firstly, this will give you an idea of your budget and likely
expenditure; secondly, providing information to lenders early will speed
up the actual mortgage application process.
First
contract stage
The
grant of the mortgage should be a condition precedent (condition
suspensive) of the first contract (compromis or sous-seing privé). If
the mortgage is not granted, you can withdraw from the purchase with your
deposit returned.
The
following points should be noted:
*It
is usually a condition that proof that the mortgage application has been
made is to be provided within 15 days of the contract and you should
ensure that you comply with this. The
proof can be provided by means of an ‘attestation’ from the lender to
this effect. If you insert the
condition into the contract and then do not make an application, the
vendor could oppose the return of the deposit if you do not complete.
*There
is usually a deadline for the grant of the mortgage in the first contract.
This must be a minimum 30 days from the date of the contract.
A realistic deadline is normally two to three months for a
non-French resident. What
occurs when this deadline is passed will depend in part on what the
contract itself states but you should endeavour to respect it.
The deadline can be extended with the agreement of the other party.
*You
will need to provide much detailed information to the lender.
For those in employment, banks will typically require your last
three payslips, statement of bank accounts going back three months, the
last tax return, full personal details of each borrower e.t.c.
For those who are self-employed, the process is potentially more
complex. This should be borne
in mind in the context of what is stated above concerning deadlines.
*A
life insurance policy to the benefit of the bank will in almost all cases
be required. For people of a
certain age or with health problems, enquiries should be made as early as
possible to ensure that the obtaining of life insurance will not pose a
problem. Certain borrowers
will be required to undertake medical tests, ranging from a simple health
check by your doctor to electro-cardiograms and blood tests (for those
borrowing larger amounts or who have declared a health problem on the
obligatory ‘questionnaire de santé’).
It is often the life insurance that can lead to lengthy delays and
it is often overlooked until the final stages.
Note that it is possible to obtain life insurance from an insurer
other than that proposed by the lender.
However, this complicates the matter and you should organise this
in advance to prevent delays.
The
mortgage offer
You
will receive a written mortgage offer once all the formalities have been
completed and the bank agrees to lend.
Following receipt of the offer, you legally cannot sign for ten
clear days. This means that
you will need to wait eleven days to accept the offer.
The acceptance is to be sent back to the bank by registered post.
Again, this should be remembered when organising the completion
date. If sufficient time is
not allowed, the sale simply cannot complete.
COMPLETION
There
will be a deed (acte authentique) for the mortgage, often included in the
body of the completion deed (acte de vente).
This specifies the terms and conditions of the lending and provides
the bank with its security so that it can recover the debt in the event of
failure to pay.
*The
bank liases with the notaire to approve a copy of the deed.
Once this is done and, if applicable, the notaire has received your
contribution towards the price, draw-down of the mortgage monies will be
requested from the lender. Draw-down
itself takes at least 24 hours so needs to be factored into the timetable.
*If
you cannot be present to sign the mortgage deed, a power of attorney can
be organised so that the deed can be signed on your behalf.
However, this power of attorney should be in ‘authentic’ form
which adds an extra level of complication to the legalisation of the
power. For those resident in
the UK, this means signature in front of a notary public or solicitor and
then the ‘apostille’ (stamp) inserted by the Foreign and Commonwealth
Office or alternatively signature in front of a French consular
representative with notaire’s powers.
The power cannot be drafted until details of the mortgage are known
from the mortgage offer meaning that it often arrives very late in the
day.
*The
bank will in most cases require all those who are borrowing to be a party
to the mortgage either as full borrowers or guarantors (cautions).
When the application is made, it is therefore important to include
all parties to the actual purchase. This
can sometimes be overlooked and later rectification may lead to increased
costs and delays (and even a refusal to lend if one of the parties is
unsuitable). Banks can lend to
SCIs (French property holding company) but the offer will normally need to
be in the name of the SCI (the offer can usually only be made once the SCI
is duly registered, therefore in the SCI/mortgage scenario, the SCI must
come first).
COSTS
The
costs of an individual mortgage will need to be ascertained from the
lender. However, you should
note that in addition to other costs, the registration of the mortgage
security attracts an additional fee charged by the notaire.
This is typically 1% of the amount borrowed and it is usually not
possible to calculate this until the end when the full details of the
security required by the lender are known.
27/04/2004
- Issue of the week
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