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How To Get A Mortgage In Portugal As A Foreigner

Updated: June 25, 2024
By: Frederik Pohl

Imagine waking up to the gentle hum of a seaside town, stepping out to a balcony overlooking quaint terracotta rooftops, and sipping on freshly brewed coffee as the Portuguese sun warms your day. Owning a slice of this dream is more than just a fantasy for many foreigners. Yet, diving into the mortgage maze in Portugal can feel a bit like trying to order a pastel de nata without knowing the local language. From unraveling the process, decoding the rules, understanding taxes to choosing the right bank – there’s so much to learn. But worry not! We’ve compiled the following information that will explain exactly how to get a mortgage in Portugal as a foreigner.

Frederik Pohl
Frederik Pohl, CEO
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Initiating Your Mortgage Application in Portugal as a Foreigner

As the old adage goes, timing is everything. And this couldn’t be more true when it comes to applying for a mortgage in Portugal. So, before you get swept away by the charm of the country’s quintas or the modern city apartments, it’s imperative to kick-start the mortgage application process.

Why? Because initiating this crucial step even before finalizing a property can offer valuable insights into potential down payments and loan conditions, effectively setting the stage for an informed property decision.

What Are the Mortgage Types in Portugal?

In Portugal, as in many global real estate markets, mortgages can generally be categorized into two primary types: fixed-rate and variable-rate. Your choice between them should be informed by your financial position, market predictions, and personal comfort regarding payment fluctuations.

Fixed-rate Mortgage

A fixed-rate mortgage is characterized by its stability. Borrowers commit to a single interest rate, unchanged for the entirety of a predetermined period; this could be as short as one year or extend up to 30 years. At the end of this term, especially if it’s short, the mortgage might convert into a variable rate. The primary benefit? It guards against potential rate fluctuations in the bank’s rate and the broader European base rate. However, an essential note of caution: those considering an early repayment might face penalties.

Variable-rate Mortgage

A more dynamic option, the variable-rate mortgage, is popular in Portugal. Starting rates hover around 3.3% annually, particularly when the loan-to-value ratio stands at 30%. These rates, by their very nature, can vary month-to-month based on the prevailing interest rates. The reference for these interest fluctuations is often the EURIBOR, the standard interest rate benchmark utilized for home loans in Portugal. An early repayment on this mortgage type, much like its fixed-rate counterpart, incurs charges, typically around 0.5% on the repaid capital.

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Deposit Expectations and Loan-to-Value Ratios in Portugal

Now, let’s break down some numbers. If you’re a non-resident, banks typically expect you to front a minimum of 30% as a deposit. And when we talk about loans, while you might hear the terms “loan-to-value ratio” thrown around quite a bit, in Portugal, this usually hovers around 65%-75% of the property value or sale price. But here’s a little silver lining: if you’ve set your roots deeper as a fiscal resident, some banks might be willing to stretch that to a whopping 85%-90%.

Choosing Your Financial Partner: Comparing Banks

The Portuguese banking landscape offers more than a dozen choices, each with its unique set of mortgage options. High-profile players include BBVA, Santander, Banco Best, Bankinter, and Banco CTT. Still, it’s imperative to thoroughly research and compare each bank’s offerings, understanding the nuances of their mortgage packages. After all, the right bank can make all the difference in your home-buying experience.

What Are the Essential Documents for Mortgage Approval in Portugal as a Foreigner?

Navigating the mortgage process in Portugal requires a bit of preparation, especially when it comes to documentation. While the list might seem extensive, each document serves a distinct purpose in establishing your credibility and financial standing. Whether you’re a salaried individual, a self-employed business mogul, or somewhere in between, having these documents on hand can significantly streamline your application process.

Essential Documents Checklist:
  • Personal Identification: A copy of your passport
  • Portuguese Tax Number (NIF)
  • Income Verification:
    • For the employed: Last year’s tax returns, payslips from the last three months, and a reference letter from your employer detailing your tenure and salary.
    • For the self-employed: Business bank statements for the past three months, the previous year’s tax returns, and three years of company profit & loss and balance sheets.
      Other sources of income: Proof of pension income or rental income, investment certificates, etc.
  • Financial Standing: Personal bank statements for the last three months showcasing your income and expenses.
  • Proof of Address: A recent utility bill or a similar document.
  • Property Details: Purchase commitment or sales contract of the property you intend to buy.
  • Existing Mortgage Details: If you have an existing mortgage, a recent statement of the same.
  • Financial References: A bank reference letter and proof of savings or investment accounts.

Ensuring you have all these documents organized and ready not only demonstrates your seriousness but also puts you one step closer to securing your home in Portugal.

From Quote to Completion: The Portuguese Mortgage Application Process Explained

Once you’ve done your homework, you’re all set to start the application process. Here are the steps required to secure your mortgage in Portugal:

  • Initiate contact with a bank or mortgage broker.
  • Receive a mortgage quote within a few days.
  • Fill out necessary forms and provide relevant documents.
  • Await the bank’s approval.
  • Undertake a property valuation to determine market value.
  • Set a completion date.
  • Transfer the required funds.
  • Finalize the deal in front of a Portuguese Notary.

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Fees Associated with Mortgage Applications in Portugal

While you’re gearing up to invest in Portuguese real estate, it’s essential to factor in the various fees tied to the mortgage process. From advisory services and bank application fees to valuation and legal fees, each charge plays a role. Additionally, government-related expenses such as taxes, notary fees, and the stamp duty (which stands at 0.60% of the mortgage amount) come into play post the property purchase completion. Being aware of these costs ensures a transparent and smooth property acquisition.

How Hard Is It to Get a Mortgage in Portugal as a Foreigner?

So, how hard is it to get a mortgage? Is it even possible for foreigners? If Portugal is on your radar, you’re in luck.

Securing a mortgage in Portugal, contrary to what one might assume, is refreshingly straightforward for foreigners. In fact, Portuguese banks exhibit an open-armed approach, extending opportunities to non-residents with an eagerness that often surprises many.

And retirees, don’t think you’re left out of this. Even if your days in the regular workforce are behind you, Portuguese banks consider regular pension income from abroad as a viable source for mortgage financing. Moreover, for those eyeing the commercial property landscape, loans are available too. However, do note that banks might cap lending at around 50% of the property’s price for commercial ventures.

Yet, a word to the wise: while the process might be simple in essence, the intricacies and particulars of bureaucracy are ever-present. Approach this mortgage journey with eyes wide open and a hunger for understanding. Knowledge is your ally here, ensuring you don’t fall into pitfalls or get caught in a loop of red tape.

Explore Your Mortgage Options Today

At the end of the day, the allure of Portugal’s landscapes and culture is undeniable. But before you make it your home, understand the mortgage intricacies that await. While the path might seem lined with paperwork and protocols, the destination, a home in this beautiful country, is worth every step. So, don’t just dream; take action. Explore mortgage options in Portugal today and enjoy the next chapter of your life!

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