5 Best Practices for Getting a Mortgage

In this period of rapid and steady interest rate hikes, it is essential to submit a loan application that highlights the strength of your financial profile. With banks becoming more demanding than before, certain factors have become essential for securing a loan.
 

1. Demonstrate good management of your bank accounts

Proper management of your bank accounts is essential. This includes maintaining a positive bank balance for at least the three months prior to applying for a loan.
Banks also keep a close eye on gambling activities. If the amounts wagered become too high, some loan applications may be rejected for this reason, as banks consider them high-risk, even if the borrowers’ accounts do not exceed their authorized overdraft limits.
However, it is entirely possible to obtain a mortgage, even with other outstanding loans, provided that you comply with the applicable debt-to-income ratios.

2. Save up a sufficient down payment

Over the course of a year, the average down payment required by banks has risen sharply, from an average of €53,000 in the second quarter of 2022 to €68,000 during the same period in 2023. “Today, the minimum down payment required depends on the region where you live. It’s lowest in Brittany, at an average of 10% of the total cost of the loan. But in some regions, banks require a down payment of more than 20%,” notes Laura Martino, director of banking partnerships at CAFPI.
First-time homebuyers are not always able to meet these new requirements. To prepare for a purchase, prospective buyers must build up substantial savings, which can be used as a down payment. “Building up a contingency fund means stacking the odds in your favor by sending reassuring signals to the banks,” she explains.

3. Have some savings left over

With the return of inflation, banks are also keeping a close eye on the cost of living. Rising energy prices, property taxes, and even everyday expenses are eroding the purchasing power of prospective borrowers. Banks want to ensure that customers are financially prepared to absorb this decline in purchasing power, as well as any unexpected expenses.
The amount of these residual savings depends on the project. “We consider a contingency fund of 10% of the total purchase price to be sufficient for a new or existing home that does not require renovation,” explains Laura Martino.
“But for the purchase of a property requiring renovations, banks may require up to 20% in residual savings to cover unforeseen expenses, which are more common in these types of projects,” she notes.

4. Be mindful of load fluctuations

When a renter wants to become a homeowner, it’s essential to pay close attention to the difference between the amount of rent paid and future monthly mortgage payments. “The transition from renter to homeowner is inevitably more expensive. Banks therefore pay close attention to this point. It is therefore essential to reassure them,” emphasizes Laura Martino.
Note that the increase in monthly expenses can amount to several hundred euros when switching from renting to homeownership. The tenant must demonstrate the ability to save this additional amount before signing the mortgage agreement.

5. Work with a broker

With rising interest rates, many loan applications that were viable just a year ago are now being rejected. Seeking the guidance of a loan expert has therefore become essential for saving not only money but also time. Their financial partners can help secure more affordable financing, and their expertise in subsidized loans and additional government assistance can help lower monthly payments or increase the down payment.

Example of savings achieved through a mortgage broker: a couple in their 30s buying their first home, with an annual income of €51,000, who wish to borrow €260,000 over 25 years. Using a mortgage broker resulted in savings of €32,000 by reducing monthly payments by about €100, thanks in particular to a 50% reduction in mortgage insurance premiums and a negotiated interest rate of 3.34%, compared to the May average of 3.6%.

(source: Cafpi)