Personal contribution is one of the main elements in the context of the financing file for a mortgage loan. Through your income level, debt ratio calculation and life balance, this allows you to better determine the quality of your file in order to better negotiate with its bank. How can you increase your personal investment? Can I get a loan without? What are the rules of the bank? We tell you everything.
What is the personal contribution?
A personal contribution is the amount of money that a prospective buyer is willing to invest in their real estate project in addition to the loan financing. Its amount is expressed as a percentage of the total project amount. As a rule, banks appreciate that a personal contribution reaches 10% of the total cost of the transaction.
Example : you are aiming to purchase a property worth 180,000 euros. For a personal contribution of 10%, you need to raise funds of at least 18,000 euros!
Benefits of personal contribution
Needless to say, the higher your personal contribution, the more confident the bank will be. The candidate proves to bank consultants that he is able to save and therefore repay. With such a file, the credit organization will be able to offer you a mortgage offer quickly and at the best rate.
Good to know A: Ideally, this should be a personal contribution, allowing you to cover all additional costs such as notary fees, agency fees, as well as warranty, file and brokerage fees.
Therefore, a personal contribution can be a key element in obtaining a loan on good terms.
Use and interest from personal contribution
Thus, personal contribution is intended for:
- Cover notary fees, which average 8%;
- Pay fees due to the real estate agency and/or broker;
- Reduce the loan amount and/or loan term.
In these conditions the candidate will be in a strong position to negotiate with their bank: He will have more opportunities to lower the interest rate on the loan, reduce or even eliminate the application fee, negotiate early repayment of the refund, etc.
Various sources of his personal contributions
After all, a personal contribution can be made up in many different ways. Let’s see how best to combine them on the day you apply for a mortgage.
A personal contribution can be made up of your savings made over time, placed in particular in savings accounts such as:
- booklet A;
- booklet on sustainable and inclusive development (LDDS);
- The People’s Savings (LEP) booklet;
- home savings plan (PEL);
- life insurance;
- company savings plan (PEE), etc.
Good to know : In a mortgage strategy, it is preferable that the capital saved be guaranteed. Beware of stock market investments or unit-based support from a stock accumulation plan (PEA) or life insurance if you plan to pursue your project in the short term.
Additional Financial Benefits
Secondly, your personal contribution can be supplemented with additional financial benefits, such as:
- exclusive bonus;
- a loan from his family or one of his relatives;
- share in the profits of his business.
- capital gain after the resale of the first house;
- rent received after one or more rental investments;
If you are an employee, also consider your company savings plan (PEE) if you have one: buying your primary residence could be an early release!
Loans as a personal contribution!
Nothing in the constitution of your funding plan should be left out.
Certainly, some loans are equated to a personal deposit by banks and thus can enrich the kitten dedicated to personal contribution. Therefore, it would be very harmful not to covet them. So we can mention:
- zero interest rate loan (PTZ);
- Action Logement loan (for example, housing at 1%);
- Social Attachment Credit (PAS);
- joining the nuclear submarine;
- home savings loan (PEL);
- loans to civil servants;
- loans provided by pension funds or the Family Allowance Fund (CAF);
- local, regional and departmental funding
- intermediate loan.
Can I get a loan without a personal contribution?
Yes, you can borrow without a personal contribution. Fortunately, because not everyone can raise significant funds before investing in a real estate project. Many French also believe that they do not have the means to do so.
Even those with savings you do not have to invest all your savings in the purchase of real estate. Acquisition of real estate very often generates unforeseen costs and additional expenses. For these reasons it is always useful save precautionary savings enough not to go broke.
If you don’t have enough personal input, it’s important to be able to have the most secure file for the bank, in particular:
- employment under a permanent contract and with work experience;
- comfortable income;
- controlled debt;
- maintenance or even a reduction in your future costs associated with this real estate project.
Mortgage 100% and even 110%
Young working people are the first to suffer from insufficient personal contribution in the context of a real estate project. However, they have the advantage that they are especially in demand by banking institutions. They aspire to expand your customer base and offer no-fee financial solutions without hesitation.
100% loan covers the entire purchase of the property. The lending institution can even formulate a loan of more than 110% subject to additional costs such as notary fees, translation fees, agency fees, etc.
Loan to value or loan to value ratio (LTV)
Credit to Value (LTV) is an important criterion for banks to issue a mortgage and makes it possible to assess the risk in case of non-payment. Thus, LTV relates the amount of the loan to the amount of the financed product.
The lower the LTV, the more reliable the financing, even in the event of a forced resale of the asset on the market. In the same vein, if real estate prices go up, there is nothing to worry about. Conversely, if real estate prices fall and the client can no longer meet deadlines, the bank may take a big risk.
Example with a contribution of 27,700 euros
Or a loan of 200,000 euros
Example with a contribution of 5000 euros
Or a loan of 222,700 euros
Purchase: 200,000 euros.
Credit to cost: 100%
The bank finances here only the value of the property.
Bank risk is under control.
Credit to cost: 113.85%
The bank finances more than the value of the property.
This is an additional risk for the bank.
Notary fees: 15,700 euros.
Agency fees: €10,000
Other: 2000 euros
General : 227,700 euros
To ensure that borrowers do not end up over-indebted, the Banque de France and HCSF are considering setting a cap on the credit-to-value ratio, or LTV. In other words : the regulator wants to impose a mandatory personal contribution, which would be contrary to mortgage loans issued without a personal contribution.
HCSF position on LTV
From January 1, 2022 and in accordance with the recommendations and obligations imposed by the Higher Board of Financial Stability (HCSF), banks are already applying a debt ratio of 35%, including insurance. However, households are already sometimes tempted to cross this 35% threshold in an environment where wages are growing at a slower pace than property prices. By encouraging future buyers to make a personal contribution, we primarily seek to reduce the risks of a real estate crisis. However, if minimum consumption rules or LTVs come into play, the real estate sector will lose most of its clientele!
Pricebank Summary of Personal Funding Contribution
With or without a fee, and for all the reasons mentioned together, each candidate’s profile is examined with a magnifying glass by banking consultants who analyze:
- the opportunity to save;
- debt level;
- the rest to live after paying monthly mortgage installments;
- family situation;
- Career prospects;
- the nature of the employment contract;
- the value of the acquired property, etc.
Without personal involvement, the negotiations promise to be more delicate, and the interest rates offered are higher than average. Don’t give up and get support for your funding request. On our site you can also explore mortgage loans online.
We hope we have answered your questions. Please note that we remain at your disposal for any further information.
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