Personal contribution is almost essential to take out a mortgage . While it is reasonable to say that 10% contribution constitutes a good entry point to ownership, it is in no case a generality. As proof, some households do not need capital, others will ask 20% for a mortgage. Why this contribution, how to minimize it and what are the means to bring it together, here is a guide for the attention of the buyer of the property .
Why do you need a contribution in a mortgage?
To cover purchase costs
When a bank or loan company grants a home loan, it takes out a mortgage or uses the services of surety companies. Clearly, it gives itself the possibility of selling the housing in case the borrowers are no longer able to repay their credit. Because real estate and land are tangible assets , they can be seized and resold.
However, all costs related to the purchase of real estate are non-palpable. The notary’s fees, the transfer rights, the cost of the mortgage or the bond as well as the agency fees, all this is elusive, and therefore non-resellable.
It is common for banks and credit companies to ask home buyers to pay the purchase costs themselves. Thus, the lender commits only on seizable .
To retain only good borrowers
A good borrower is a borrower who pays back. The more savings the borrower has, the more he proves that he is able to save , and therefore repay. Some lending financial institutions only trust households that have succeeded in saving.
To attract savers
Banks love savers. They offer all kinds of investment and life insurance booklets, essential tools for the French saver. When a bank opens the file of a first-time home buyer and sees that he has savings products, he immediately wants to draw him into his coffers. Ultimately, the candidate borrower will consume banking products and bring money back to his bank .
This is one of the key arguments used by a mortgage broker. Negotiation consists in evaluating the attraction that the broker’s client represents for the banks he approaches. Of course, the more the client is valued, the better the conditions that the bank will grant him.
Minimize the contribution thanks to its repayment capacity
Importance of the debt ratio in a mortgage
The more a borrower has repayment capacity compared to the monthly payments, the less risk it poses for a lender. An individual’s repayment capacity is determined by the difference between 33% of their taxable income and their current debt ratio. The greater this difference, the more repayment capacity the borrower has.
Example: a couple has net taxable income of $ 4,500 . They only have one credit to their credit, with a monthly payment of $ 450 . Their debt ratio is 10%, and their ability to repay 23% of $ 4500 or $ 1035.
In this example above, if the couple requests a home loan with monthly payments of $ 1000 , the lender will ask for a substantial contribution. If the couple requests a loan with monthly payments of $ 800 , the lender will ask them for less capital because there is still margin on their repayment capacity.
How to improve your repayment capacity
There are 2 solutions to increase a repayment capacity. The first consists in carrying out a grouping of loans, in order to reduce its monthly payments . The second consists in lengthening the duration of the reimbursements, although this solution is quite relative because the longer the reimbursement lasts, the more the risk increases.
This is where the work of Vousfinancer.com brokers comes in : determining the repayment capacity of first-time buyers, and developing a repayment strategy according to their means.
Tips for bringing together the contribution of the mortgage
Savings, the right argument
As mentioned above, banks love savers. Building savings allows you to raise the capital necessary to make a mortgage, but that’s not all. It sometimes happens that some banks offer to first-time buyers to transfer all of their savings to their safe, without taking it out of the investment. It simply happens that the bank has more interest in the fact that the first-time buyers use all their capital for a savings product, and borrow 100%. This is not the most common case, but it does happen.
In any case, savings undoubtedly make it possible to make a contribution for a mortgage.
Investing in rental property
The investment in rental property precisely makes it possible to constitute a contribution for its main residence. This solution is particularly intended for people with a low repayment capacity. Because in the rental, a rent compensates the monthly payments. Thus, investors only have to pay the capital out of their pockets, rents pay interest and borrower insurance.
The maneuver consists in buying a small dwelling, most often a studio. Then the investors rent it out, to resell it once they get enough capital .
This solution is interesting, but it must be done with full knowledge of the facts. It is important that the capital gain generated and the share of capital repaid is not too undermined by interest and prepayment penalties .
The brokers of Vousfinancer.com take the time to take stock with investors on the relevance of a real estate investment, according to the expected holding period.
Donations and inheritance
Sometimes real estate prices are such that savings and investment are not enough to obtain a contribution. In metropolises where the price per square meter is high, it is common for parents to make donations to their children, so that the latter have enough capital for their mortgage.
French taxation allows each parent to give $ 100,000 to each child per 15 year period, without gift or inheritance tax. There is also the possibility of exceptional money donations. Parents and grandparents can thus give almost $ 36,000 to children and grandchildren, without donation rights.