Mortgages in Portugal for foreigners
Sandrine
Oct. 28, 2020
The attractions for real estate investors and property hunters overseas could be very tempting for foreigners interested in acquiring properties in Portugal.
The benefits of getting a mortgage in Portugal include the country's beauty with a rich culture, a modern and multilingual banking system, affordability of real estate properties, and a recovering housing system. The restrictions on property ownership for foreigners and non-EU citizens are also very limited in Portugal. Another advantage of acquiring a Portuguese property is that you can get a "golden visa". This status can be attained if you purchase a property worth at least €500,000. With this visa, you can obtain a Portuguese permanent residence after five years. In this article, we shall guide you on mortgages in Portugal for foreigners. The paperwork required, procedure, fees, and any other legal obligations to be fulfilled by the investor.

Documents required to acquire a mortgage in Portugal

Before applying for a mortgage as a foreigner or non –EU citizen in Portugal, there are some documents you must provide (depending on your employment status) before you can go on with the process. These documents include the following;
  • A passport copy
  • A Portuguese tax number (you will be required to register for a Portuguese tax number)
  • Bank statements for the last 90 days
  • Proof of address (most recent utility bill)
  • ​Proof of investment or savings accounts
  • ​Recent mortgage statement
  • ​A bank reference letter
  • ​A sales/purchase contract or a purchase commitment of the property

Employed status

  • Your tax return for the last year
  • Your payslips for the last three months
  • A reference letter from your employer (the letter should include your work experience, your gross annual salary, and other incomes/bonuses)

Self Employed (You own at least 20% shares of a limited company)

  • Last year’s tax returns
  • Business bank statements for the last three months
  • Company balance sheet for the last three years (profits and losses)

Other income

  • Pension income from the last three months
  • Tenancy agreement for rental properties
  • Proof of income from rents for the last three months
  • ​Copy of investment certificates
Additional documents may be required by the bank if they have ascertained extra risk on assessment.

Mortgage-related fees in Portugal

Regular charges: Mortgage adviser service fees are about €300. This is a fee refundable upon completion of the mortgage process is complete.

Bank Valuation Fees: These fees range from €175 to €500. If the bank has already done a valuation, there is no need for further valuation.

Bank Application Fees: These fees vary from bank to bank, in the range of €150 to 0.50% (plus tax) of the requested loan amount. Charges are not applicable in the case where the bank cannot make a mortgage offer.

Bank Legal Fees: The bank’s lawyers also have to search for the mortgage and any outstanding debts against the property. This is not a fixed sum but will amount up to €1,100. This total sum includes bank legal fees.

Lawyer Fees: Lawyer charges are always around 1% to 2% of the property’s purchase price.

Taxes And Notary fees: These are about 5% to 6% of the property’s purchase price.

Stamp Duty: On completion of the mortgage process, 0.60% of the mortgage's amount is paid to the Portuguese government from the applicant’s bank.

Types of Mortgages in Portugal

There are two types of repayment options for mortgages offered by banks in Portugal. These are the fixed-rate mortgage and variable-rate mortgage.

Fixed-Rate Mortgage: With the fixed-rate mortgage, the same installment payments are made every month over a fixed period. This period can be from a year and can expand to as long as 30 years. The advantage of a fixed-rate payment plan is the protection it offers when there are fluctuations in bank rate and European base rate. Its disadvantage is that you will be charged with a fine on the rapid capital if you decided to pay earlier.

Variable-Rate Mortgage: It’s the most customary type of mortgage in Portugal. They start at a 3.3% rate a year when the loan-to-value ratio is less than or equal to 30%. Alternatively, the rate is fixed at 4.1% for up to five years if the loan-to-value ratio is up to or above 70%. Different installment payments could be paid each month with this variable plan depending on interest rates. The payment plan could span to 30 years for no Portuguese citizens. There would be a rapid capital charge (0.5%) on the variable rate mortgage option if you decided to repay earlier. The variable mortgage rate in Portugal is indexed to the EURIBOR (Euro interbank offered rate)

Minimum Deposit and Loan-to-value ratio
The minimum deposit required by foreigners for a mortgage in Portugal is 30% of the property’s purchase price, with a maximum loan-to-value ratio of 70%. Most Portuguese banks will offer a loan of 65% to 75% of the property value.

The Mortgage Process step-by-step

Once you have decided on getting your mortgage, the initial thing to do is to get in contact with a mortgage broker or bank. You are advised to compare banks before making your choice. Once initial assessments are done, you should proceed as follows:

Mortgage Quota: You will receive a full quote for your mortgage within 1-2 days of your application. This is usually charges associated with the preparation of this quote!

Submitting The Application Forms: After you receive the quote, proceed to fill the application form and submit with other supporting documents.

Mortgage offer: upon approval of the mortgage, a formal offer will be sent to you. Once the offer conditions are checked and approved by your broker, he can then help you with the rest of the process.

Valuation Report: On receipt of the formal offer, the bank will conduct a valuation of the property. If the property has no legal concerns, and the acquisition price is agreed upon with the valuation amount and details, the purchase date will be set and confirmed.

Completion Procedure: The initial funds must be transferred to the destined account. A prove of funds is required for the lender to proceed with the application. Once provided, a completion date is scheduled.

Completion: Signing of the mortgage deeds and conclusion for this process takes place before a Portuguese notary. When all taxes and fees related to the mortgage are made, you become the property's formal owner. To speed up this process, it is always good to provide recent documents!

Conclusion

For any international or foreign real estate investment, it’s always wise to seek the advice or service of a professional (Portuguese mortgage broker in this case) to facilitate and guide you with the process.
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