26 July 2016 - French Mortgage News | International Mortgage News | Partners News |
The Benefits of an Approval in Principal
By Ben Longley
Purchasing a property in France is a dream held by many British buyers. Some may be very familiar with the domestic mortgage process, but there are some fundamental points which may be overlooked or confused by even the most experienced mortgage mogul.
For French banks, the element of risk is far higher for non-resident lending. This is the key contributing factor to the ever stricter criteria imposed on British borrowers seeking finance for a property purchase in France. Indeed, ever since 2008, French banks’ policies and procedures have been largely overhauled but are not universal; the criteria vary hugely from one lender to the next.
There are, however, several highly useful tools and tactics which can help ease the anxiety in ascertaining your eligibility for a French mortgage. The best option is to seek an Agreement in Principle (AIP).
Firstly, it is important to differentiate between a quote or illustration, and a full AIP.
Typically, you would receive a quote based on a verbal analysis of your income and outgoings. From this, you would receive an AIP based on the documents you provide – as long as these support the information given to gain your quote. In short, the quote is an illustration of what you would be entitled to, subject to your documents corroborating the information provided. On the other hand, the AIP is a full, formal financial approval.
Evidently, securing an AIP before visiting properties can be highly advantageous in the sense that you would know exactly how much you could borrow. However, this is not the only positive factor of gaining an AIP.
When it comes to making an offer on your dream French property, you would have a lot more bargaining power than a non-resident buyer with no financial plan in place. This is partly due to the fact that with an AIP, you would be considered a cash buyer. It is also partly thanks to the fact that for a French vendor, there is often a degree of risk in accepting an offer from a non-resident buyer. The concern is that when they accept your offer and stop marketing the property, they are closing the door to any other potential offers. Being a non-resident buyer, the vendor may very well be concerned that they would lose other interested parties without the guarantee of knowing their buyer will actually be financially able to purchase the property. Making an offer with an AIP in place will alleviate these concerns for the vendor.
One common concern with an AIP is that it would be invalid by the time you find a property. Generally speaking, lenders do not issue an AIP with a set expiration date. Your file is given a financial approval based on your situation on the day the bank examines your paperwork. Therefore, provided your situation does not change, updated documents would be submitted to the bank, to show that your income and expenditure is the same, and there is no need to reapply for the AIP.
Similarly, the loan size requested can be altered, if you ultimately make an offer on a property which is not the same price as your previously estimated budget. It is easier to reduce the loan amount post-AIP than to increase it, although both are possible provided you meet the affordability criteria. In short, an AIP is easily renewable.
Not all French lenders offer AIPs, but it is a highly popular option for non-resident buyers, especially those who are unfamiliar with the process and requirements of securing a French mortgage. An AIP is undoubtedly the most effective way of gaining the security, peace of mind and bargaining power that will ultimately make any viewing trip to France as successful as possible.
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