French mortgages for Americans

First published: 28th May 2012 by Eleanor Fullalove

France has always been a popular second home destination for many Americans, whether it is the chic central districts of urban Paris or the emerald blue sea of the Côte d’Azur.

Certain economic challenges over the last few years have resulted in many international buyers of French property actively considering the benefits of using a French mortgage to finance at least part of the purchase costs.

Here we are going to provide some information on the availability of French mortgages for American buyers, and some key points that you should consider.

French mortgage providers continue to demonstrate a strong appetite to lend to non-resident buyers of French second homes, and those looking to relocate to the country. While lending criteria has tightened a little in the past 12 to 15 months, it is still possible to borrow up to 80% of the property’s value from a French bank.

Certain French lenders have shown caution in relation to their understanding of US tax documents. For this reason, one French mortgage provider has recently stopped providing non-resident mortgages to individuals based in the US and US tax payers. That said, this example is very much a case apart – a good French mortgage broker will be able to find plenty of mortgage options for you if you wish to go down the financing route.

French mortgages for US residents are currently available on both an interest only and capital and interest repayment basis. If you opt for the interest only option, you should be aware that the products currently made available by French retail banks will only offer an interest only period for an initial period of time (up to a maximum of 10 years) before reverting to a capital and interest repayment period.

French lenders judge affordability using debt to income ratios, whereby they will allow between 30–40% of an individual’s income to be taken up with repaying existing mortgage and debt commitments and the new French mortgage.

The documentation that you will need to provide when submitting your French mortgage application will need to prove to the lender that you have sufficient income to service the loan you are applying for. French banks are unable to carry out credit checks on borrowers from the US, so they require an exhaustive set of supporting paperwork from which the applicant’s full financial profile can be determined.

Significant movements in exchange rates over the past few years have highlighted the benefits of using at least some euro denominated debt to finance the purchase of a property in France. For this reason, using dollar denominated assets to finance the purchase may not be an approach that US-based buyers are currently willing to take.

In fact, for US based cash buyers of property in France, taking out a 50% euro-denominated mortgage secured against the asset you are purchasing can prove an attractive option. The interest rates payable on French mortgages are currently near historic lows and it can be trickier to raise money against an unencumbered property in France after you have purchased it. Unlike the US, where re-mortgaging is much more common, it is more expensive to remortgage in France. This highlights the importance of making the right decision on how you are going to finance the transaction when you are purchasing the property.

Over recent years, with it becoming more expensive and complicated to gain access to credit in markets around the world, potential borrowers are having to give this additional thought. For those who are fortunate enough to be able to purchase using cash, securing the peace of mind that comes with taking out a small mortgage so as not to tie up all your funds in a purchase is an option that an increasing number of buyers are opting for. There can also be wealth tax benefits to having a French mortgage secured against your property in France.

Mortgage rates in France currently start at around 2.80% (for variable rates) and 4.05% for a fixed rate of up to 20 years. Variable French mortgage rates have been coming down in recent months as the Euribor three month index, which they track, has fallen from around 1.58% in November to 2011 to 0.675% today.

It is always recommended that you consult a reputable French mortgage broker in order to explore your financing options further. The knowledgeable staff at a French mortgage broker should be able to provide an English-speaking service, which would help to allay some of your doubts at the start of the process and give you a better idea of the options open to you. This service will continue throughout the application procedure, making the job of securing the best deal available considerably easier.