The 110 percent home loan is a financing allowing a borrower without contribution to obtain his credit but also to cover the costs related to the conclusion of this loan. Explanations on this particular loan which tends to grow more and more in this period of low rates.
The current trend is towards a slow rise in rates, which arouses among some borrowers the desire to "take advantage" of this trend before a more sustained rise in mortgage rates. Two types of borrowers merge in this project, the borrower having already bought his property in previous years and wishing to acquire a new property but without contribution (see this link). The other is the Frenchman with no savings and wishing to become an owner.
For these two profiles, it is possible to finance your project by using a 110% home loan , i.e. a credit that covers the amount of the property to be purchased plus the costs associated with its subscription. We then speak of a project amount reduced to 110% of the value of the property.
The 110% mortgage allows households to realize their real estate project by including in the credit the value of the property and the costs of files, mandate as well as guarantee. For example, a property offered for sale for a value of €200,000 will require a borrower without contribution to take out a loan of €200,000, the bank will offer a loan of €220,000 to cover administration fees (approximately 5% of the amount of the value of the property) and mortgage fees (according to the scale of French notaries).
The contribution is no longer a barrier for the household having a real estate project, it is enough that its borrowing capacity allows it to collect an amount at 110%, it is mainly its debt ratio that will be able to judge this ability. The bank is therefore responsible for accounting for income, expenses and determining the share that monthly payments represent on monthly income, this share must not exceed 33%.
If this loan allows borrowers without contribution to access the property or to acquire a second home, it is subject to a very meticulous feasibility study. Without contribution, the borrower must present himself in his best light to convince the bank, this implies not having any rejection of direct debits, bank overdrafts (be careful not to abuse overdraft authorizations) or any other negative sign.
In addition, banks tend to want to "catch up" on insurance for these specific profiles, they often offer expensive loan insurance, a product where the margin is higher, which makes it possible to minimize the risk. Finally, the domiciliation of income is essential in this type of operation, a movement to be taken into account for future buyers.
In the long term, it is advisable to read the credit contract offer carefully and to measure the commitment, that is to say the need to honor each of the monthly payments according to the announced schedule.
