Originally published at: Mortgages in Portugal for Foreigners
Mortgages in Portugal
Mortgages in Portugal are available for both residents and non-residents in the country. They can apply for a mortgage through Portuguese banks.
Getting a mortgage in Portugal has some advantages. For example, the lender does the necessary legal checks on the property in Portugal and offers a valuation. Also, there are very few restraints on foreigners buying property in Portugal.
Moreover, the real estate properties in Portugal are comparatively cheap in Europe. In fact, getting a mortgage has become easier in recent years, thanks to the banks lending again after the economic recovery. Not to mention that the stable housing market in Portugal has contributed to this.
Furthermore, when you wish to buy property, we advise you to sort out your new mortgage early in the process. In this way, you can figure out your mortgage payments, and how much other related costs will be. Also, you will find out how much money the lender will lend you, depending on the value of the property.
What Are the Mortgage Options in Portugal?
There are two types of Portuguese mortgages:
- Fixed-rate mortgage, and
- Variable-rate mortgage.
If the borrowers choose fixed-rate mortgages, they will pay a constant rate for their purchase for a determined period. The duration may change depending on the institution. It ranges between one and 30 years. If it is for a short term, then it converts to a variable-rate mortgage.
So, what is the benefit of a fixed-rate mortgage? It basically saves you from the fluctuations happening in the European base rate and in the bank. It is important to note that if you decide to repay early, they may charge you a fine on the repaid capital.
Variable-rate mortgages are more common than fixed-rate mortgages. If you choose a variable-rate mortgage, you will pay different installments each month. The installment will depend on the interest rate and the indexer. Mostly, the index used for housing loans is EURIBOR.
EURIBOR (Euro Interbank Offer Rate) is a reference rate that eurozone banks use. It is based on average interest rates.
In Portugal, the variable-rate starts from 3.3% a year in cases where the loan-to-value ratio is 30%. Alternatively, when the loan-to-value ratio is up to 70%, the variable rate is 4.1% up to five years.
If you decide to pay earlier, then you will be charged on the repaid capital. The rate will be 0.5%.
Minimum Deposit for Portugal Mortgages
For non-residents of Portugal, the minimum deposit is usually 30% of the house value. The maximum loan-to-value ratio is 70% of the purchase price. Most banks in Portugal offer loans up to 65%-75% of the sale price or the property value. Fiscal residents, however, may sometimes borrow loans up to 85%-90% of the real estate value.
How To Apply For Mortgages In Portugal
Below, you can find the required documents to apply for a mortgage in Portugal. Depending on your employment type, they will require you to submit a few additional documents as well:
- Copy of passport
- Portuguese tax number (NIF). It’s necessary that you get a Portuguese tax number. However, it will not mean that you will be a tax resident in Portugal.
- Proof of income
- Personal bank statements of the last three months (including the incoming and outgoing capital)
- Proof of address (i.e., recent utility bill)
- Recent mortgage statement
- Proof of savings or investment accounts
- Bank reference letter
- Details of property: Purchase commitment or sales contract of the property
If You’re Employed
If employed, you must prepare the necessary documents below:
- Tax returns of the last year
- Payslips of the last three months
- Reference letter from your employer (a letter including the information about how long you’ve been working in the company, and how much your gross annual salary is, and other incomes such as bonuses, etc.)
If You’re Self-Employed and You Hold at Least A 20% Share in A Limited Company:
- Tax returns of the last year
- Business bank statements for the last three months
- Three years of company profit & loss and balance sheet
For other incomes, you should prepare the following:
- Proof of pension income for the last three months
- Copy of tenancy agreement for rental properties
- The last three months’ statements showing rent received
- Copy of investment certificates
Be prepared to collect additional documents required by the bank depending on the level of risk assessment.
Steps for Application
Firstly, you must get in contact with a bank or a mortgage broker in Portugal. After they make an initial assessment, you will follow the following steps:
After the initial assessment, you receive a full quote within one to two days. There will be a charge for the formal quote.
Submit The Application Forms
You must complete a relevant application form after you receive the formal quote. Then you submit other necessary additional documents.
If they approve the mortgage, you will receive an offer. Then your broker approves the offer and its conditions. They also help you with the rest of this procedure.
The bank will prepare a valuation of the property. If the amount of valuation is at least the purchase price, and there is no legal issue about the property, details will be approved.
Arrangements for Completion
You must transfer the funds to the appropriate account before the date of completion. When it is proven that you have available funds, your lender will arrange the mortgage application. After this, the completion date will become certain.
You sign the property and mortgage deeds before the related Portuguese notary. You pay the related fees and taxes. After this, you will become the official owner of the property.
What Are the Fees Related To the Mortgage Application In Portugal?
The amount is around €300 for the services of a mortgage advisor. They refund it when the mortgage procedure is complete.
Fee for Bank Application
It can be around €150 or it will be calculated as 0.50% (+ taxes) of the loan amount. It depends on the bank. If the bank cannot make a mortgage offer, it usually does not charge you.
Bank Legal Fees
The bank will appoint lawyers to research the mortgage and the outstanding debts against the property. There is no fixed fee for this. However, all other fees will be around €1.100, and it will include bank legal fees as well.
Mostly, lawyers charge you around 1%-2% of the purchase price of the property.
Notary Fees and Taxes
It will be around 5%-6% of the purchase price of the property.
Stamp Duty (IMI)
The Portuguese government takes 0.6% of the mortgage amount from your bank account. This will occur after the completion of the mortgage.
Banks in Portugal
In Portugal, there are more than fifteen banks offering loans. It is advisable to compare the banks before applying for a mortgage. Some of the banks include BBVA, Santander, Bankinter, Banco Best, and Banco CTT.
Read our article on how to open a bank account in Portugal.
Frequently Asked Questions
Yes, retirees can take out mortgages in Portugal provided that they have a regular pension income. To learn more, read our guide on retiring in Portugal.
Yes, it is possible for you to take out a mortgage if the property you will buy is for business purposes. The maximum mortgage rate is 50% of the price or the valuation if the valuation is lower.
Yes, the mortgage rate is around 50%-60% of the total cost of the land and property. It is advisable to consult a mortgage broker before you apply.
Usually, banks in Portugal offer mortgages for people up to 70 years of age. However, some banks also offer them to applicants up to 80 years of age.
For non-residents of Portugal, the loan term is up to 30 years.
You definitely need to have life insurance when you sign a mortgage loan. Furthermore, some banks require you to have home insurance too.
If you undertake a home loan in Portugal, you need to pay a property tax (IMT) varying between 2% and 8%. In addition to this, you pay stamp duty tax at a rate of 0.8% of the property price. Also, the total fee of notary, registry, and tax office fees for property deeds is around €1.200
Yes, the rates are low and favorable enough for buying a property in Portugal. Buying Portugal property will also pave the way to get a Portuguese Golden Visa. In order to learn more about this residency by investment scheme, read our guide on Golden Visa Portugal.