REAL ESTATE

Getting a loan can be a complex and frustrating process. However, when your application is finally turned down after a 45-day wait, it can be particularly disappointing. The reasons for a loan refusal can be many, ranging from a poor credit rating to insufficient borrowing capacity. Whatever the reason, it's essential not to get discouraged and to take steps to bounce back. So, what should you do after a loan refusal following the signing of a compromise? Do you have to pay penalties to the seller?

Understanding the reason for the loan rejection by the bank.

Bank refusals can be attributed to various reasons, not just debt capacity. According to the HCSF in January 2022, the debt capacity is 35%, which has directly impacted the number of home loan refusals. Banks have become stricter due to these new regulations, and other factors must also be considered.

An unimpressive bank profile 

Banks must evaluate the borrower's financial situation in detail to ensure solvency. Non-compliance with specific criteria, such as income or credit history, can result in negative consequences for the borrower's file. Bank overdrafts or extravagant, unjustified expenses should be avoided.

Changes to Loan Conditions 

During the 45-day period, loan conditions may have changed. If an application is deemed admissible at the time of submission and the bank has provided an agreement in principle, the rules may still change. In such cases, the bank reserves the right to refuse the loan despite the agreement in principle. Please note that this document does not signify acceptance of the loan application; it is merely a document certifying that your application is admissible.

Loan-sharking

Recently, banks have been refusing loans when the APR exceeds the usury rate recommended by the Banque de France. The APR represents the total cost of the loan, including the nominal interest rate, insurance costs, administration fees, guarantee fees, and other charges.

Read our article about Usury rates and real estate credit for more information.

How to Cancel a Sale After a 45-Day Loan Refusal 

The Importance of Suspensive Conditions in Sales Agreements

The compromis de vente, also known as the avant-contrat, is the document that finalizes the commitment of the buyer and seller to a property purchase. It can be signed directly between the two parties or before a notary. When signing the compromis, suspensive conditions may be inserted. These conditions, freely defined by each party, may cancel the sale without any penalty on either side, such as obtaining a bank loan or a building permit. Drafting these conditions correctly is essential to avoid penalties. Use the following tips to ensure your conditions are properly written. Real Estate Investor's Toolkit This document collection, validated by our lawyers, contains all the necessary paperwork to facilitate a successful real estate transaction.

Once the suspensive conditions are met, the sale continues, culminating in the signing of the deed of sale by the notary. This typically occurs within 45 days of signing the compromis. It is important to note that you have a 10-day period after signing the compromis to cancel the compromis de vente without any justification. To cancel, simply send a registered letter to the seller. After the 10 days have elapsed, you must provide justification that the cancellation meets the conditions precedent. If a bank loan is refused, the bank will provide a certificate of refusal as justification.

Certificate of Refusal for Real Estate Loan

When a bank denies a loan, it sends a letter of refusal to the applicant. This letter states that the loan cannot be obtained. You can then request a certificate of refusal, although the bank is not obligated to provide a reason for the denial in the letter. However, you may inquire about the reasons when requesting the certificate of refusal.

Sending the certificate of refusal to the vendor and the notary.

The loan refusal certificate is a legal document that proves your loan application has been denied. To cancel the sale without penalty and receive a refund of your security deposit, you must provide the loan refusal certificate to the seller and their notary (and to your notary if you have a different one). The seller has 15 days from the receipt of this letter to reimburse the full amount.

Is one certificate of refusal sufficient?

Some sellers may require up to three certificates before canceling the sale. However, the number of certificates needed depends on the suspensive conditions. If the conditions state that the applicant must obtain a loan from a specific bank, then a loan refusal from that bank is sufficient. If the conditions specify two or three banks, then you will need to approach those banks. Therefore, it is important to pay close attention to the suspensive conditions. If the cancellation is made outside of the suspensive conditions, you will be subject to penalties.

What happens if the bank denies the loan after 45 days?

If your loan application is rejected by one bank, it is important to study your situation. If your banking profile is sound and the project is profitable, consider applying to other banks. Each bank has its own lending policies, so don't be discouraged if one bank turns you down. Some banks may be more willing to work with investors than others. Sometimes, all it takes is finding a contact person who understands your project better. In any case, it is important to prepare a comprehensive banking file. To learn how to prepare your banking file to avoid further refusals, click on... this link.