How to Apply for a Mortgage and What Expenses to Expect

Getting a mortgage in Portugal is very common. Portuguese banks offer mortgages both to residents and non-residents of Portugal. There are many advantages to buying a property in Portugal. Some of these include the relatively low real estate prices and little to no restriction on foreigners acquiring property.

It is easy for foreigners to get a mortgage if they plan on buying a property in Portugal. Most local lenders are well acquainted with the process. People can get mortgages for all real estate types, including residential, commercial, industrial, etc. Whether you’re buying a home, a shop, or a restaurant, you can leverage your investment for 25 to 30 years with competitively low-interest rates.

When to start applying for a Portuguese mortgage

When to start applying for a Portuguese mortgage

It is best to start applying for a mortgage in Portugal as early as possible on your property acquisition journey. You do not necessarily have to have decided on the property you will acquire. Starting early will prepare you for how much the down payment and other terms will be. This way, you can find out if you can afford the prospective properties or not.

Types of Mortgages in Portugal

There are two types of repayment options, one being a fixed rate and the other one being a variable rate.

Fixed-rate mortgage

Fixed-rate mortgages help borrowers pay the mortgage at a constant rate for a certain period. This period can be either one year or can be extended for as long as 30 years. If it is for the short term, it will convert into a variable-rate mortgage. The advantage of the fixed-rate mortgage is that it protects you from fluctuations in a bank’s rate and the European base rate. On the other hand, if you decide to repay early, you may have to pay a fine on the repaid capital.

Fixed-rate mortgage

This is the most common type of mortgage. In Portugal, variable-rate mortgages start at a rate of 3.3% yearly when the loan-to-value ratio is 30%. As an alternative to this, the fixed rate is 4.1% (up to 5 years) when the loan-to-value ratio is up to 70%.


With this type of mortgage, you can end up paying different monthly amounts, depending on the interest rate. It may last as long as thirty years for most non-residents of Portugal. When you decide on early repayment, you will be charged on the repaid capital (0.5%) for the variable-rate mortgage.

The Variable mortgage rate in Portugal is indexed to the EURIBOR (a basic interest rate reference used to set the interest rates Portugal has on home loans).

The Minimum Deposit and Loan-to-Value Ratio

For non-residents in Portugal, the minimum deposit for a mortgage is 30%, and the maximum loan-to-value ratio is 70% of the purchase price. Most banks offer loans of up to 65%-75% of the property value or the sale price. In some cases, for fiscal residents, it is possible to borrow up to 85%-90% of the same price.

Required Documents to Apply for a Mortgage in Portugal

Portuguese lenders require a list of documents for the application for mortgages. In addition to the necessary documentation, you will be asked to present a few more documents depending on your employment status. You can see the required documents below:

  • Copy of passport
  • Portuguese tax number (NIF)
  • Proof of income
  • Personal bank statements for the last three months (including the incoming and outgoing capital)
  • Proof of address (i.e., recent utility bill)
  • Recent mortgage statement
  • Proof of saving or investment accounts
  • Bank reference letter
  • Purchase commitment or sales contract (of the property)

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When employed:

  • Last year’s tax returns
  • Payslips for the last three months
  • Reference letter from your employer (a letter including the information about how long you’ve been working in the company, how much your gross annual salary is, and other incomes such as bonuses and so on)

When self-employed (when you hold at least a 20% share in a limited company):

  • Last year’s tax returns
  • Business bank statements for the last three months
  • Three years of company profit & loss and balance sheet

Other income:

  • 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

In addition to these, the bank may require other necessary documents according to an assessment of the level of risk.

The Application Process

The first thing to do is to get in contact with a bank or a mortgage broker. After the initial assessment, you can follow the steps below:

Mortgage Quote

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.

Mortgage Offer

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.

Valuation Report

The bank will prepare a valuation of the property. Details will be approved if the valuation amount is at least the purchase price and there is no legal issue about the property.

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.

Completion

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?

How to Apply for a Mortgage and What Expenses to Expect - Company with the real estate license of Portugal, focused on buying and selling property for international clients. - Mortgage Application

Regular Charges

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 property’s mortgage and 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.

Lawyer Fee

Mostly, lawyers charge you around 1%-2% of the property’s purchase price.

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.

FAQ

What are the lending criteria for a mortgage in Portugal?

Usually, the banks analyze your financial position and the property’s valuation.

Which documents are accepted as proof of income?

When applying for a mortgage, foreign investors can prove their income with documents such as rental income, dividend payments, salary income, investment income, and pension income. These incomes are proven via payslips or pension slips, tax returns, and bank statements.

Is it possible to take out a mortgage for business purposes in Portugal?

Yes, if you plan to buy a property such as a restaurant or a shop for business purposes, you can take out a mortgage. The maximum mortgage you can take is 50% of the price or the valuation if the valuation is lower.

Can retirees take out a mortgage in Portugal?

Yes, if the retiree has a regular pension income.

Are there mortgages for construction?

Yes, there are. You can take around 50%-60% of the total cost of land and construction. However, it is best to consult a mortgage broker if you plan to apply for this kind of mortgage.

What is the cost of buying a house in Portugal?

Below are the taxes and other fees you need to pay when you undertake a home loan:

  • Property tax (IMT) : Varies between 2% and 8%.
  • Stamp Duty Tax (IMI): 0.8% of the price of the property
  • Notary, registry, and tax office fees for property deeds: €1,200
  • Estimate of legal fees: €1,800

What is the age limit to take out a mortgage?

Most of the banks offer mortgages to borrowers aged up to 70 years. However, some banks accept individuals aged up to 80.

What is the loan term for residents and non-residents?

For residents, the banks offer terms up to 50 years, while for non-residents, the duration is up to 30 years.

Is it necessary to have life insurance while signing a mortgage loan?

Yes, you must contract life insurance when you sign a mortgage loan. Sometimes, some banks require home insurance as well.

What is EURIBOR?

Euro Interbank Offer Rate (EURIBOR) is basically a reference rate that eurozone banks use. It is based on average interest rates. Mortgage rates in Portugal also depend on this.

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