With the surge in rates in 2023, the French have seen their borrowing capacity melt like snow in the sun. But not discouraged from buying their cozy nest, many buyers did not hesitate to call their family for help to get a little financial help with a view to building up their contribution. Focus on an increasingly common trend.
You have fallen for a pretty farmhouse in Provence and are already thinking about decorating your future living room. Minute butterfly, this building costs a little more than expected and you cannot grow a money tree in your garden. So how to do ?
Borrowing from loved ones, a helping hand to become an owner
Many aspiring homeowners try the “call a friend” joker, aka borrowing from relatives. The family loan can take different forms. It is the opportunity for some to increase their contribution a little, while for others, it is the way to finance a significant part of the purchase of the property.
Borrowing from her parents is what Sandra, 29, did: “My situation is a bit special because I wanted to buy an apartment in Toulouse before leaving my permanent contract. And clearly, I was far from having a suitable intake“.
The young media planner visits several properties before finding a charming two-room apartment. Bad news, he is missing 15,000 euros of contribution for his loan application to be accepted. “At the time, I clearly underestimated the importance of the contribution, I was well below 10%… I was disappointed.” On the verge of rejecting her project, she receives the support of her parents, who offer to help her. “At first, I was a little skeptical, especially towards my brother. And I was afraid that my debt ratio was too high. Finally, I accepted and it was thanks to that that I was able to become an owner“.
The debt ratio is the percentage of your monthly income devoted to repaying your debts (personal loans, consumer loans, etc.).
Regulated by the High Financial Stability Council, it is capped at 35%, meaning that your monthly mortgage payment must not exceed a little more than a third of your income. If your debt ratio is higher, the bank will not be able to finance you.
Moreover, the family loan is mainly aimed at a type of borrower profile, explains Elodie Fremont, president of the real estate statistics commission of the Notaries of Greater Paris to the magazine Challenges : “These are acts that we see more and more frequently, especially among first-time buyers”.
Naturally, when making the first purchase, we do not have the same resources as when we have already purchased and above all, we are not the same age. The average age of French people buying property for the first time is 32 years old and 41 years old for those who are already owners.
At Pretto, we observed an increase of 19.6% in the contribution of first-time buyers over the last three years. That says a lot about the increase in the provision and accessibility of credit. Today, borrowing without contribution is the exception. The rules impose a minimum of 10%, but if you are aiming for the best conditions, between 15 and 20% should be put on the table.
It is therefore not surprising that some first-time buyers must turn to their family to finance their purchase, provided of course that they have relatives able to lend money!
…framed by a few rules
As the saying goes, “good accounts make good friends,” and this also applies to family loans. When one or more family members lend you money, there is no maximum amount. In theory, Bernard Arnault could lend his entire fortune, or $238.5 billion according to the magazine’s estimate. Forbes in May 2023, to a member of his family.
But according to the Civil Code, any loan exceeding 1,500 euros must be declared. For what ? To comply with tax legislation and prevent family conflicts. It would be unfortunate if the purchase of your life turned into an argument between cheese and dessert… After all, that’s what Christmas is for!
Since 2020, any family loan exceeding the sum of 5,000 euros requires a declaration to the tax administration.
How to declare the loan?
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Acts under private signature. The borrower and the lender must establish a written document attesting to the existence of the loan and clearly specifying the nature of the loan, excluding any gift nature. Yes, otherwise the rules change.
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Authentic deed before the notary. In this case, it is the notary who draws up the deed which both parties then sign. This provides legal protection to the loan.
Paul-Marie Schneider, associate lawyer at Berrylaw, strongly recommends using the services of a notary when concluding a loan contract. He explains to Challenges : “We recommend registering the loan contract, whatever the amount lent, which allows it to be given a certain date. It only costs 125 euros.”
Whether you make a deed privately or in front of a notary, you must specify the amount loaned, the repayment period, the monthly payments, as well as the interest rate. Because even if your uncle only lends you a few coins for your project, he has the right to set an interest rate.
If that is the case, “the loan must respect the usury rate between individuals. Also, the lender must declare to the tax authorities the interest he has received and will be taxed at the overall rate of 30%.” explains Paul-Marie Schneider. But in the majority of family loans do not have interest rates.
The family loan is taken into account in the calculation of the debt ratio. Even though the funds do not come directly from the bank, it is considered a traditional loan that you must repay. So remember to report this to your bank during your procedures.
There is a scenario in which it is not taken into account in the calculation, as explained by Henri, Credit Expert at Pretto for 5 years: “The only exception for which the family loan is not taken into account in the debt ratio is when the loan document explicitly stipulates that the repayment of the family loan will take place after the repayment of the property loan.”
In short, your generous lender will have to wait until you have repaid your bank loan before you can return the funds they lent you.
I calculate my debt ratio
The family loan is an excellent opportunity to strengthen your contribution and help you realize your dream of becoming the owner of this charming Tiny House in Perche. But that’s not an option for everyone, because not everyone is lucky enough to have loved ones willing to whip out their checkbook for a financial boost.
Do you have a loved one ready to top up your down payment for the purchase, but feel overwhelmed by all the steps needed to get the right credit? Pretto is here to guide you through the process and allow you to become an owner with complete peace of mind.
2024-02-16 09:37:09
#family #loan #tip #owner #Pretto
