Many French people want to invest in real estate, especially to own their home. Everyone is looking for attractive rates, which is not easy in this period when interest rates are experiencing a situation of a heatstroke due to inflation. But in addition to this important issue, the greatest concern concerns a possible mortgage refusal. In fact, a bank is not required to commit. After studying the practice, he has every right to refuse the granting of this loan without necessarily having to justify himself. However, it is advisable to ask for some explanations in order to better understand what led to this refusal. While getting a mortgage can sometimes be like an obstacle course, it’s important not to be discouraged. All banks or lenders do not have the same requirements and it is therefore necessary to compete to increase the chances of getting a deal. It is also necessary to take time to review your file and improve the points that can lead the bank not to finance a real estate investment.
The main reasons for refusing a mortgage
In the context of a home loan, the reasons for a refusal to grant can be multiple. However, there are four main causes, starting with a excessive debt ratio. The debt ratio is calculated on the basis of a family’s income and fixed expenses. From 1 January 2022, this rate must not exceed 35%, although some exceptions are possible. Banks can in fact exceed this ceiling, provided that such mortgages do not represent more than 20% of the cases dealt with. Another frequent obstacle is insufficient personal contribution. While in rare cases it is sometimes possible to obtain a mortgage without a personal contribution, banks generally require it to be equal to 10%, or rather 20% of the total amount of the credit. Poor account management, including recurring bank overdrafts, is also a major obstacle. The applicant’s professional situation is often closely examined. Therefore, a permanent worker is much more likely to be able to carry out his investment project than a variable income person. In the world of real estate credit, financial stability is an important element.
The first actions to be taken in case of refusal
In case of refusal of the loan, it is above all necessary to understand what motivated this decision. If the debt ratio is too high, there are solutions. It is advisable to reduce the costs, which can go through the containment of expenses, the renegotiation of some subscriptions (energy, insurance, telephony) or the repurchase of credits for those who already have several loans in progress. If the personal contribution is insufficient, it is possible to improve this point with the financial assistance of a loved one. For people who do not have a permanent contract, variable income is not necessarily an obstacle. On the other hand, it must be shown that, in several years, this income was sufficient to consider a mortgage. On this point, banks generally ask for a right to look at the incomes of the last three years. As for the mismanagement of the bank account, it is something that can be remedied over time, even if it can, at first, lead to a postponement of the planned investment.
Real estate credit, possible solutions
As indicated above, it is crucial to challenge the competition when applying for a mortgage. Not all banks have the same strategy in this area and a file rejected in one institution may very well be accepted elsewhere. Sometimes, you also need to consider lowering your ambitions. If it is impossible to obtain a home loan in the amount of 200,000 euros, it may be possible to accept the practice for 190,000 euros. Extending the duration of the loan is also a solution, knowing that the monthly payments will be lower for a 25-year loan than for over twenty years. On the other hand, the interest rate charged will be higher and the cost of credit will eventually be higher. Another solution is to use a broker. This real estate professional is in a perfect position to detect any flaws in a mortgage application file and to find solutions to make it more easily acceptable to banks.
By the editorial staff of the hREF agency