Buying a house is always something you have to think very carefully about, especially if it’s your first home and if you’re going to need a mortgage to buy it. Because it's a long-term decision and has an enormous impact on your personal and family finances, this is one of the most decisive moments in many people’s lives.
In this article about the financial aspects of buying a house in Portugal, provided by Doutor Finanças for idealista/news, we point out the top 3 things that you should be aware of when buying your first house, so that you budget correctly and everything goes smoothly.
1. Have enough money to pay for it
At the moment, banks only finance 100% of the asking price for properties they have in their portfolios, but if you only look for only this type of house it can become very restrictive, especially in times of high demand like the one the Portuguese real estate market is seeing right now.
More commonly, when you search for a home using a real estate agency or by yourself, banks will give you up to 90% of the property price, so you should have at least 10% of the value of the property saved up, plus extra cash for other costs such as the title deeds, property transfer taxes or stamp duty.
Just in case the bank can’t go as high as to mortgage you 90% of the price, you should preferably have 20% of the property value saved up. This will also increase your negotiating power with the bank to allow you to get better mortgage conditions.
In this sense, understanding how much you can put down as a deposit is also important because it lets you know what your real budget will be when you buy your first home.
2. Get all the right paperwork together
Once you have worked out the mortgage amount you can or wish to obtain, it’s important that you are prepared to seek out the best mortgage loan possible from financial and banking institutions. In order to properly analyse your financial capacity, the banks will certainly ask you for some documents, including but not limited to:
- ID document;
- Your last 3 pay slips (6 if you are self-employed);
- A declaration from your employer;
- 3 recent bank statements (6 if you are self-employed);
- IRS declaration;
- Liability Statement;
You should know that banks will normally give preference to people whose effort rate is less than 35%, who have a permanent contract of employment and don’t have any other debts.
If you are self-employed, it will certainly pay off to have all the necessary documents in the first phase. If necessary, you can also look for an accountant or financial specialist to help you show your average annual and monthly income to the bank.
3. Knowing the vocabulary related to housing loans
Once you have gathered the necessary documents and worked out how much money you can get on your mortgage, it is important to be able to interpret the obtuse banking jargon you are presented with. Knowing all the rates and interests of a mortgage loan as well as other products associated with them is very important and you can avoid losing a lot of money if you’re educated about what exactly you’re choosing.
Get to know all about concepts in the Portuguese mortgage market like TAE, TAEG and TAN, as well as general things like fixed and variable interest rates, spreads, and life and multi-risk insurance.
Buying your first home, just like getting your first mortgage, can be as exciting as it is scary. Being informed is certainly your best weapon to avoid getting a bad deal and keeping your finances balanced.