How to get a mortgage in Portugal as an expat, for residents and non-residents.
Even though Portugal is still in the midst of the coronavirus pandemic crisis, banks continue to be willing to finance house purchases, and along with low interest rates, now could be the perfect time to buy a property and take out a mortgage in Portugal. In order to do this, it is important to understand how the mortgage process in Portugal works step by step, especially if you're not from Portugal or are buying property in Portugal for the first time. Doing your research will help is to avoid it being complex and time-consuming. Whether you're a resident in Portugal or not, let's have a look at the process of getting a mortgage in Portugal as a foreigner.
Given the complexity of the mortgage process in any country, not just in Portugal, the help of a credit intermediary or mortgage broker will be welcome, explains Miguel Cabrita who is charge of idealista's mortgage service, idealista/créditohabitação in Portugal. "You will save time when contacting different banks, you will clarify your doubts with someone who is specialised in this area and you will also save money, not only because the service is free but also because of the advantages that mortgage brokers are able to guarantee with banks", he adds.
The first steps to take are to understand if you will be able to get a loan, look at the mortgage offers currently on the market and compare them in order to get the best mortgage for your needs. You'll need to get together certain documents which usually vary for non-residents, and then, you will go through the valuation process of the property and the respective deed.
Documents needed for a mortgage application in Portugal
The documentation required to get your mortgage application analysed does not vary much between banks so you should expect to be asked for the following documents, at an early stage if you are resident:
- ID document;
- 3 most recent payslips;
- IRS payment slip and declaration from the last year;
- Bank account statement for the last 3 months;
- "Mapa de Responsabilidade de Crédito" (Credit Responsibility Map) from Banco do Portugal
Take note that if you are a resident in Portugal, meaning that you pay your taxes in Portugal, then the documents you will need to provide are the same as a Portuguese native.
If you are not a resident in Portugal, you will usually need to provide more documents which may include the following:
- Portuguese Tax Number (NIF - find out how to get one here);
- Copy of your passport;
- Last 3 months personal bank statements (including other loans/investments/salary);
- Proof of your current address (a utility bill, for example);
- A bank reference letter from your country of residence;
- Copy of last year’s income tax declaration or proof of where you pay your taxes;
- Employer’s reference confirming current employment length of service and gross annual salary;
- 3 most recent payslips;
- A full credit report with scoring (in the UK you can usually obtain this from Experian, Equifax or TransUnion.
Take note that all of your documents will also need to be officially translated to Portuguese, and these official translations may also require a Hague Apostille: the Apostille is attached to your original document to verify it is legitimate and authentic and is often a vital element for a document to be accepted other countries. Therefore, the best advice is to check with the bank which documents are needed beforehand and if official translations and the Apostille are required.
Choosing a Bank
After sending your documents to the bank, or getting a mortgage broker to do it for you, you will get what is known as mortgage pre-approval from the banks that are willing to lend you money for your new home. This will then allow you to take a closer look at the conditions offered by each bank and pick the best mortgage for your needs. Pay attention to the following items:
- TAEG: this is the Portuguese equivalent of APR (the Annual Percentage Rate) that allows you to compare different mortgages effectively, as long as their characteristics are the same, i.e. the same length, amount and repayment method;
- MTIC: this is the "Total Amount Imputed to the Consumer" and is another indicator that you should use to make a comparison between different credit offers. The MTIC reflects the total amount you will pay over the entire loan period, since it includes all credit costs (interest, commissions, taxes and other charges);
- Spread: the mortgage spread basically refers to the profit the bank obtains from lending you money. However, more than the spread alone, you should check what you need to link in order to get the best spread deal, as taking out additional products, such as house insurance, can lower the spread.
Once you have chosen your property and the bank that offers you the best conditions, it is time to request a valuation of the property from the respective bank. This is where you will come across the first costs of the process.
At this stage, the bank will request the property valuation from a specialised and independent entity that will issue a report detailing the value of the property. This valuation will then be used to know how much money the bank will be able to lend you. In some cases, this valuation amount is higher than the purchase price and some banks will offer you more money as a result.
With the mortgage credit approved and the valuation in conformity, the approval letter will be issued, after which you will have to wait a minimum of seven days to execute the deed, since a cooling off period is guaranteed.
At this stage there will be the payment of taxes, namely IMT (Municipal Tax over Onerous Transmissions of Real Estate) and Stamp Duty, which have to be liquidated for the deed to be executed.
The clear definition of the whole process and also the help you can get during it will dictate the time between the first step and the deeds, which can go from 1 to 3 months, depending on the delay in collecting the documentation and the availability of the buying and selling party.