The acquisition of a real estate property often gives rise to the issue of personal contribution. The personal contribution is a sum of money that the borrower has to get out of his pocket to finance a real estate project . The savings you may have directly put in the real estate you want to obtain in order to simplify its obtaining.
What’s the point of personal contribution?
Protect yourself from the risk
In general, banks ask borrowers that their personal contribution can finance notary fees and guarantee fees . These fees represent up to 10% of the sale price of a property in a purchase in the old real estate, in the new it represents about 5% of the sum.
This request of the bank is justified because it makes it possible to guarantee the property, the expenses are additional elements in the acquisition of a housing.
If the borrower commits a default, the loan agency may seize the property and take back the loaned amount. If the fees are loaned to you by the bank, it is not possible to recover the funds.
Forcing the credit on the value of real estate allows the bank a guarantee of total recovery of funds in case of default. That is why bringing the notary and guarantee fees allows the lending organization to take control of the risk, your file will be more easily accepted by the bank.
The origin of your personal contribution
Your personal contribution can come from several sources: savings, current accounts, booklets, inheritance, donation … it is cash that a borrower has in his possession.
If you do not reside in France and your personal contribution is on an account abroad, you need to repatriate on the national territory, it sometimes happens that this is problematic in the country where you want to acquire the real estate because the source of any contribution must be justified with a bank .
In addition, in some situations a personal contribution can also come from the sale of an old home, you can use in this context to a loan relay: the time that you sell a property, you can make the acquisition of another.
Personal contribution increases your borrowing capacity
higher input, lower rate
Apart from the costs financed by a personal contribution, the loan organizations favor loan applications that guarantee a large personal contribution .
Indeed, regardless of the source of the contribution as long as it remains legal in the eyes of banks, a personal contribution that exceeds 20% of the price of the property is an advantage for lending institutions and this marks a real trust between both parties.
With a personal contribution of around 20%, real estate rates offered by banks are logically lower. A borrower with a personal contribution proves his seriousness in front of the bank.
Do not put all your savings in your personal contribution
It should be understood that the borrower should not put all his savings into his personal contribution . Additional fees and unexpected expenses may occur during your real estate purchase, so you need to keep some money.
However, if you have a savings with a remunerative rate that is higher than the interest rate of the mortgage loan it is not financially attractive to increase your personal contribution.
In this scenario, the bank will know that you are able to save and will see in your project a money back guarantee in a difficult situation.
How is the personal contribution calculated?
You want to calculate your personal contribution before the presentation of your loan application file to your bank, you must understand beforehand that a contribution is a percentage of the total amount of your property acquisition project.
If you have found the property you wish to buy and you are aware of the price, you must divide the amount you want to invest to the total amount of the property .
example of calculates the personal contribution
Suppose you want to buy a house for 300,000 euros, your personal contribution is 50,000 euros. Your personal contribution will then be around 15% of the price of the real estate: 50 000/30 000. The mortgage will then be 166 000 euros, about 75% of the price of the acquisition.
to borrow without personal contribution, it is possible
However, we must nuance all the things said previously, the lending agencies are not against granting credit without personal contribution even if they are more rare, you will need to be vigilant with banks. Three types of borrower profiles without contributions are however accepted by the loan organizations:
young first-time buyers
Young first-time buyers who have just entered the workforce and have not had the opportunity to save before can benefit from a mortgage without any personal contribution. Aided loans such as the Zero Rate Loan or the Housing Loan can however make it possible to make a contribution, the banks make no distinction at this level.
To benefit investments
Otherwise, there are individuals who have significant savings and wish to acquire while keeping the money that has just been invested. If you have a lot of savings and tax exemption products, then you can get a home loan without any input, the interest rate that is offered by the lending agency will be lower than the investment rates you have facts.
Investors wishing to rent a home can have a credit without personal contribution. The payment of the interest of a mortgage allows a reduction of taxes. The more investors borrow, the more land benefits will decrease. That’s why it’s best for them not to come with a personal contribution. This method is often used as part of a Credit in Fine.