The mortgage condition in a French preliminary contract

How can you protect your purchase with a mortgage condition? How should the clause be worded? What are the deadlines? The advantages?

Buyers rarely have all the funds needed when the preliminary contract is signed. They often need a bank loan to complete the purchase, which then depends on obtaining that loan. French law protects the buyer in case the loan is refused. It is therefore essential for the buyer to state, when signing the preliminary contract, that the purchase will be financed by a bank loan. A condition precedent on obtaining the loan will be included in the contract.

The advantages of the clause:

This clause protects the buyer. If the bank refuses the loan, the buyer is released from the obligations of the preliminary contract, provided the refusal is notified to the other parties within the deadlines set in the contract. Note that this clause is compulsory when the buyer finances the purchase with a loan. So even if the buyer forgets to tell the seller and no clause is written into the contract, they can still benefit from it.

Wording the clause:

It must be precise and set the loan terms under which the buyer may refuse the loan if the bank offers different terms. The buyer must state the amount to borrow, the term and the maximum interest rate. If the bank then offers a loan at a higher rate than the one stated, the buyer may turn down the offer.

The deadline:

Like any condition precedent, the mortgage condition must have a deadline. The law states that it cannot be less than one month from the signing of the preliminary contract. This is short: it usually takes longer to put together a complete application and for banks to process it. In practice, the period is set at 60 days.

Accepting the loan offer:

If the bank grants the loan, it must send you the offer by registered letter. The law then requires the buyer to wait ten days before accepting it, and the bank cannot ask for your answer during that period. After these ten days, the buyer notifies the bank in writing of their acceptance. The loan offer is valid for at least 30 days. Once it is accepted, the buyer informs the seller. The preliminary contract is then secured, and the buyer can no longer withdraw from the purchase without paying the amounts set in the penalty clause.