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Think like a Banker to Get the Mortgage You Want

I was recently approached by an American client who had been turned down by a French bank for a mortgage in Paris. He was completely perplexed as to why he could not get financing – he had a steady job, good income and little debt. Believe me, it happens and more often than you would think. Tahminae Madani, from France Home explains what happened.

So what happened? Well, bankers happened. Bankers are risk averse people. If they lend you money, they want to be 200% sure you are going to pay it back. Unlike the sales person you speak to at the bank, the analyst who studies your application is normally paid a bonus to minimize the number of defaulted loans.
If you look like a risk, you’re guaranteed to get offered a higher interest rate – if they offer you a loan at all. The best way to get the mortgage you want under optimal conditions is to think like a banker when filling out your application. 

Here is a brief summary of what they ask for, and why. 

Your Revenue

What: last 3 months pay slips, last income tax statement, (or last 3 years balance sheets and income statements for the self-employed)
Why : stability of incoming revenue throughout the mortgage term
 The ideal client has been employed a long time with the same company, or at least in the same industry.   If you are self-employed, the banks want to see three years of profitable business. 

Your Expenses

What : payment schedules for all existing loans, last 3 months bank statements for all accounts
Why : how you pay for where you live today, how responsibly you spend  and your ability to reimburse your existing debt.
Every client is assumed to have housing expenses, either rental or ownership. You need to show the amount of your mortgage, proof that your mortgage is paid or your rent payment. If you stay with friends or family for free, the banker may add a hypothetical rent amount to your expenses. In addition to your housing expense, the bank wants to know what other legal debt obligations you have: credit cards, car, student or personal loans.  They take a close look at the amount you spend each month versus the amount you earn to be sure that you are living within your means.

Your Debt Ratio

What : your total monthly expenses (as above) plus the monthly payment for your new loan, divided by your net monthly income (gross income – social charges).
Why: Your debt ratio indicates your ability to pay. Depending on the bank and type of mortgage you request, this ratio must not exceed 30 to 35%.

Your Property

What : Location location location.
Why: The banker always prepares for the worst.  If you are not able to keep up your mortgage payments, the bank wants to know that they can sell your property quickly to get back the money lent.  For example, Parisian apartments and houses on the Cote d’Azur are easy to sell quickly.  There is much more demand than supply.  It’s much harder to find a buyer for a farm house in the Normandy countryside two hours drive from a major city with renovation that has not been completed.

So what do you do if you don’t fit this profile?

Don’t panic, it’s all in the preparation and presentation.

You must always provide truthful and accurate information with your mortgage application, but how you package and present that information is what counts.
Put your banker hat on and think: if you don’t have the ideal profile, provide additional information to make your application stronger, including a letter from your banker, an accountant or other logical explanations for oddities in your paperwork. Putting your best foot forward at the beginning reassures the bank and is much more effective when done in anticipation of the banker’s questions than in response.

If the explanations won’t do it, other options may be available. For example, renegotiating your existing loans or finding a different mortgage product to reduce your new loan payment and make your numbers work.

It’s always a good strategy to take an in-depth look at mortgage products from multiple banks to give you the most flexibility and best chance of getting a mortgage on the terms you want. By doing so, you enjoy a much stronger position, since you are asking for a loan you know you are eligible for from the start, rather than getting rejected and having to change your application.

Now you are ready, put on your banker hat and write that winning mortgage application!