16 Critical Things to Know About Buying in Portugal in 2024
Summary
TLDRIn this interview, Kaylee discusses securing mortgages in Portugal for foreigners with Raphael, a top mortgage broker. Raphael explains that non-residents can secure mortgages with foreign income tax documents. He discusses current interest rates, the role of a mortgage broker, eligibility criteria, and the loan approval process. Raphael also covers the steps from pre-approval to securing a property, including legal representation and negotiation of terms. He advises on shopping banks for the best rates, the possibility of using mortgage funds for renovations, and selling properties with mortgages. Raphael emphasizes the current favorable conditions for foreigners seeking mortgages in Portugal.
Takeaways
- 😀 Non-residents and foreigners can secure a mortgage in Portugal using income from abroad without needing to pay income tax or hold a visa.
- 💡 Current mortgage rates in Portugal are around 3%, significantly lower than rates in the US, UK, or Canada.
- 📊 Mortgage brokers in Portugal, like Raphael, provide proposals from different banks, allowing clients to choose the best offer with no upfront fees.
- 🏡 The key eligibility requirements include proof of income, a minimum down payment of 20%, and a debt-to-income ratio that doesn't exceed 50%.
- 📅 The mortgage process typically starts with a one-hour video interview, followed by document submission, and pre-approval within a week.
- 🔒 Fixed-rate mortgages are recommended for better cash flow management, while mixed rates (fixed then variable) are also popular.
- 💼 After pre-approval, it's advisable to secure the property with a small deposit (around €2,000–€3,000), allowing time for bank approval and appraisal before paying the rest.
- 📑 A lawyer is crucial for assisting non-residents with the entire purchasing process, including opening a bank account, signing the deed, and paying taxes.
- 🏠 On a €250,000 property, expect to pay 20% (€50,000) for the down payment and 5% (€12,700–€13,700) for closing costs.
- 💡 Portugal has favorable conditions for both residents and investors, offering benefits like low annual property taxes and the ability to rent out properties, which can cover mortgage payments.
Q & A
Can a non-resident secure a mortgage in Portugal using foreign income?
-Yes, you can secure a mortgage in Portugal using foreign income without needing to be a resident or declare income tax in Portugal. You need to provide documents like income tax forms, pay stubs, bank statements, and a credit report from your home country.
What are the current mortgage interest rates in Portugal compared to other countries?
-In Portugal, the interest rates are around 3%, which is generally cheaper than in the US, UK, or Canada. The market expects rates to decrease in 2024 and 2025, but the rates are already fixed at around 3% by the banks.
What services does a mortgage broker provide in Portugal?
-A mortgage broker like Raphael provides access to multiple banks, helping clients get various loan options based on their financial details. The broker assists throughout the mortgage process, from pre-approval to closing, without charging clients directly as they receive a success fee from the banks.
What are the key eligibility criteria for getting a mortgage in Portugal?
-To be eligible for a mortgage, applicants must have at least 20% for a down payment and 5% for closing costs. Banks assess the debt-to-income ratio, so paying off existing debts can increase the chance of approval.
How long does the mortgage approval process take in Portugal?
-The mortgage approval process generally takes about two months. This includes the initial pre-approval, appraisal, signing of the promissory contract, and finalizing the loan with the bank.
What types of interest rates are available in Portugal, and which one is preferable?
-Three types of rates are available: variable, fixed, and mixed. The fixed rate is preferred for stable cash flow, though the mixed rate is popular, offering fixed rates for an initial period before switching to variable.
What should a buyer be mindful of when signing a promissory contract in Portugal?
-When signing a promissory contract, it’s important to negotiate terms like allowing time for the bank’s appraisal and setting a smaller deposit initially. It's recommended to finalize larger payments only after the property appraisal is complete to ensure all documents are in order.
Is it necessary to have a lawyer when purchasing a property in Portugal?
-Yes, especially for non-residents, it's recommended to have a lawyer to assist with the promissory contract, opening a bank account, certifying documents, and handling taxes and legal matters during the transaction.
What are the typical costs and expenses for purchasing a €250,000 property in Portugal?
-For a €250,000 property, you’ll need a 20% down payment (€50,000) and around 5% for closing costs (€12,700 to €13,700), including taxes, mortgage fees, and other expenses.
Can someone sell their property in Portugal if they still have a mortgage on it?
-Yes, a property with a mortgage can be sold. Upon closing, the bank will receive a portion of the selling price to settle the mortgage, and the remaining amount will be given to the seller.
Outlines
💼 Securing a Mortgage in Portugal as a Non-Resident
Kaylee interviews Raphael, a mortgage broker for foreigners in Portugal, discussing how non-residents can secure a mortgage. Raphael explains that non-residents can qualify for a mortgage by providing income tax documents from abroad (such as the 1040 in the U.S. or P-60 in the UK), along with pay stubs, bank statements, and a credit report. The conversation also covers interest rates, with Raphael noting that rates are currently lower in Portugal compared to the U.S. and other countries.
📈 Current Interest Rates and Mortgage Broker Services
Raphael shares insights into the current mortgage interest rates, which are expected to decrease by 1-2% in the latter half of 2024. He explains how banks in Portugal have preemptively fixed rates at around 3%. Raphael, an economist with 30 years of experience, describes his role as a whole market mortgage broker who helps clients by presenting various mortgage proposals from banks and guiding them through the process, without charging fees to the client.
🏠 Key Eligibility Criteria for Mortgage Approval
Raphael outlines the key criteria for securing a mortgage in Portugal, including having a steady income reflected in personal bank accounts, with a down payment of at least 20% and 5% for closing costs. He explains that banks use a debt-to-income ratio to determine approval. For instance, if a client’s mortgage payments amount to €2,000 per month, they should have a net income of €4,000 to maintain a 50% ratio.
💼 Mortgage Process: Start to Finish
The mortgage process begins with a one-hour video interview where Raphael explains various scenarios and requirements. Clients are then asked to provide basic documents such as passports, pay stubs, and credit reports. Raphael emphasizes the importance of pre-approval before property hunting and explains that the pre-approval process typically takes about one week.
📊 Fixed vs. Variable Mortgage Rates
Raphael discusses different types of mortgage rates in Portugal: variable, fixed, and mixed. He generally advises against variable rates due to market fluctuations, instead recommending fixed rates for better cash flow management. Mixed rates allow for a fixed term followed by a variable rate, with options to refinance or make partial amortizations at that point.
📑 Securing a Property and Signing Contracts
In Portugal, after finding a property, buyers typically sign a promissory contract and pay 10% directly to the seller. Raphael prefers smaller deposits initially (around €2,000 to €3,000) with a 15-day period to confirm bank approvals and appraisals. He advises negotiating a 45-day timeframe for bureaucratic processes, ensuring that all contract terms are carefully arranged to avoid losing deposits.
📝 Legal Representation and Documentation
Raphael strongly recommends that non-residents hire a lawyer to represent them during the property purchase process in Portugal. Lawyers can assist with signing contracts, opening bank accounts, certifying documents, and handling taxes and bureaucratic procedures. This ensures that all steps, such as paying taxes and closing the deal, are completed correctly and efficiently.
💰 Example Scenario: Costs for a €250,000 Property
For a €250,000 property, Raphael breaks down the associated costs: €50,000 for a 20% down payment and around €13,000 for closing costs (including appraisal fees, mortgage taxes, and property taxes). He emphasizes that while upfront costs can be significant, Portugal’s annual property taxes are relatively low, ranging from 0.3% to 0.45% of the assessed value.
📅 Mortgage Terms and Age Limits
In Portugal, mortgage terms are capped at age 75, with younger buyers (under 45) eligible for maximum terms of 30 years. Older buyers can still secure longer terms with larger down payments. Raphael encourages buyers to shop around as different banks offer varying terms, interest rates, and insurance requirements.
🏦 Why You Should Shop for the Best Mortgage
Raphael stresses the importance of comparing mortgage offers from multiple banks, as rates, terms, and conditions (like life insurance requirements) can vary significantly. As a mortgage broker, Raphael can navigate these options on behalf of clients, helping them secure the best deal.
🔨 Using Mortgage Funds for Renovation
Buyers can use pre-approved mortgage funds for renovation costs. For example, if approved for €200,000, a buyer could allocate €150,000 for the property purchase and €50,000 for renovations. Raphael advises obtaining a budget for renovation to submit to the bank, which will factor into the overall appraisal.
🏢 Investing in Commercial Properties
While mortgages for residential properties allow for rentals, Raphael notes that commercial property purchases follow a different credit line. Commercial mortgages typically come with shorter terms, higher interest rates, and larger down payments but are feasible for investors interested in leasing opportunities.
💸 Prepayment Options and Penalties
In Portugal, mortgage holders can make partial or full prepayments, though penalties apply. For variable rate mortgages, the penalty is 0.5%, while for fixed rate mortgages, it is 2%. Raphael provides an example: prepaying €10,000 would incur a €200 penalty under a fixed-rate agreement.
🏡 Selling a Property with a Mortgage
Homeowners can sell a property even if it’s still under mortgage. On the closing date, the sale proceeds are divided into two checks: one for paying off the remaining mortgage balance and the other for the seller’s net profit after settling the debt.
💡 Key Advice for Foreign Buyers
Raphael encourages foreign buyers to take advantage of the current favorable conditions in Portugal. He highlights the benefits of purchasing a property as a potential investment or retirement option, noting that buying a property can also support visa applications and eventual citizenship after five years of residency.
Mindmap
Keywords
💡Mortgage
💡Interest Rates
💡Pre-approval
💡Down Payment
💡Credit Report
💡Debt to Net Income Ratio
💡Fixed Rate
💡Variable Rate
💡Mixed Rate
💡Appraisal
💡Closing Costs
Highlights
You don't need to declare income tax or be a resident in Portugal to access mortgage credit, just proof of income from abroad.
Portugal's current mortgage interest rates are around 3%, cheaper than in the US, UK, or Canada.
Anyone from any part of the world can finance a property in Portugal, as long as they have a stable income and meet a 20% minimum down payment requirement.
The debt-to-income ratio is key: monthly mortgage payments should not exceed 50% of your net income.
Pre-approval typically takes one week and requires documents like passports, income tax returns, pay stubs, and credit reports.
Banks in Portugal offer variable, fixed, or mixed-rate mortgages, with mixed being a popular option that starts with a fixed rate and becomes variable after a few years.
Lawyers are recommended for non-residents to handle legal and financial processes, including opening a bank account, certifying documents, and signing the closing deed.
For a property worth €250,000, expect 20% down payment (€50,000) plus around 5% in closing costs, including taxes and fees.
Portugal’s annual property taxes are relatively low, around 0.3% to 0.45%, based on the face value of the property documents.
There is an age limit of 75 years for mortgage applicants in Portugal, and the loan term decreases as the applicant’s age increases.
It’s important to shop around among banks for the best terms, rates, and flexibility regarding life insurance requirements.
Mortgages in Portugal can also cover renovation costs, provided a budget is presented to the bank for appraisal.
For commercial properties, higher rates and down payments apply, and the loan structure is different from residential mortgages.
Prepayment is allowed, but penalties apply: 0.5% for variable-rate loans and 2% for fixed-rate loans.
Foreign buyers are welcomed in Portugal, and having a property can ease the visa application process and contribute toward eligibility for citizenship after five years.
Transcripts
hi I'm Kaylee with xats everywhere and I sit down with one of the top mortgage brokers for
foreigners in all of Portugal I ask them the top questions that you should know before getting a
mortgage and what his clients commonly ask here's what he says Raphael let's Jump Right In can I
secure a mortgage in Portugal with income from abroad and not being a resident here absolutely
Kaylee you don't need to um declare income tax in Portugal or uh be a resident in Portugal or
have a Visa to access Credit here uh you just you just need to show your income tax from abroad. In
the US the 1040, in England the P-60, etc. Other documents like pay stubs and bank statements the
bank wants to make the bank reconciliation of these amounts so uh Credit Report with
these documents we can pre-approve you with the banks uh and then you can start your search for
properties here okay and what are the current interest rates well the the Federal Reserve
and the European Central Bank are the market is expecting them to decrease rates in the second
semester of 2024 and during 2025 so in 1% or 2% uh anticipating this movement the banks already
in Portugal had had already fixed the rates in the level of 3% so it's much more cheaper than in the
US or or England or Canada and are you a mortgage broker for the entire Market or explain what a
mortgage broker does what you do yes Kaye I am an economist MBA with MBA Finance I've been working
in the financial market for 30 years now I'm 50 I used to work for uh big companies I became an
international treasury manager and because of this job I live and work in several countries
before Portugal from Argentina Brazil Colombia to Belgium and now I'm I'm in Portugal in my seventh
year here I have the license and the certified to be a whole Market mortgage broker so I work with
the main banks in Portugal based on the financial details of the clients I give different proposal
from the from these Banks the client will choose one uh we will move forward of course me and my
team will be beside the client and following up the the client during all the process the
process and after the deed we receive a success fee commission from these VAR Banks so there is
no money charged to the clients okay great and what are some key criteria for eligible ility and
what can increase someone's chances of approval yes anyone from any part of the world can finance
a property Portugal either having a regular job with pay tubs or a company which distributes
dividends prolor or profits on a monthly basis this is very important uh in it has to be Credit
in your in your personal checking accounts on a monthly basis and a 25% of the purchase price 20%
for down payment a minimum down payment of 20% and 5% for closing cost basically taxes to enhance the
likelihood of approval uh it's important the banks here will calculate the the debt to net income
ratio so uh if you can pay off some uh some loans on that you have with monthly with large monthly
payments it will help you uh get more more credit here okay uh let me give you an example of how
the bank the banks will do this uh let's suppose your reifax shows they do this in a monthly p in a
monthly basis so let's suppose you pay per month €1,000 uh your Equifax shows this that you pay
$1,000 or equivalent in dollars for a mortgage in the US and you're going to apply for another
one for another 1,000 to give a a simple example so it would be 2,000 per month to approve a 2,000
per month payment I need a net salary of four so this ratio of 50% is always so 4,000 or more to
so it to not surpass 50% okay let's run through the whole process from start to finish what does
it look like sure uh usually I I initiate with a 1 hour video interview with a client where I'm
going to simulate mortgage scenarios I'm going to explain all closing costs and taxes I'm going
to answer all the questions the client might have so everything you need to know before start start
investing in the in the in the country then I sent the list of documents that basically are six
passports income taxes pay stubs bank statements credit report score uh an employment verification
L with these documents I can pre-approve you this is very quickly in one week I can pre-approve you
and and then you can start your search knowing how much you can get with the bank so this is the best
uh sequence the best steps are pre-approve first and then search properties later okay what are
typical terms and rates and a big question is what's better here fixed or variable yes
Kaye usually the banks can offer three types of rates so it's uh variable fixed or mix it okay
the variable is uh you be indexed to the riber that is like the FED Fund in Europe uh so we'll
be floating with the market uh with with economic circumstances let's say so I don't I usually don't
recommend this rate I would prefer the fixed rate the fixed rate have a perfect perfect cash flow
for the entire period so you can yourself it's a little more costly but you can uh um have an idea
of the Complete Cash Flow and today the mixed rate a lot of clients are are asking for the Mixed rate
where you have the fixed rate first for 2 three 5 10 15 years and then it becomes variable uh what
you can do in this process in this process is um when it becomes variable you can make a partial or
total amortization with a lower penalty you can uh try to shop the banks again to see if there is any
other option in another bank and migrate to this bank if necessary there are some cost to do this
but we make the math and you see if it's worth it uh and and you can also fix it again in a in
a better rate in a can lock in with a better rate in the future okay after pre-approval how does
someone secure a property in Portugal okay usually in Portugal um they sign they they ask you to sign
a promisory contract against paying 10% directly to the seller not to a nasc crew account so I
don't like this Mo very very much uh and then after that after signing the the contract they
go to the to the banks for the approval and the appraisal I would prefer that you first get the
pre-approval with us then once you once you find the property you sign the promisory contract with
a small deposit like 2,000 3,000 a small deposit uh and ask for a 15 days period until you can uh
check with the banks everything and and make the appraisal of the property after the approv report
of the property then you can pay the remaining 10% because you need to know that all documents
are in order before paying a large amount to to to the seller okay of course you can put a clause to
to get the reimbursement but I would prefer that you pay later and then you have to ask for more
45 days for all the bureaucratic uh Pro process until to the end so in the end it will be like two
a two- month process and you have to and you have to negotiate these terms very well so when you put
a when you put in an offer you just you just don't show don't say just the the amount you're going to
say my my offer is this I want 15 days for uh for to have the appraisal then I will complete the the
the the down payment and I need an extra 45 days until the de if you don't negotiate these terms
you might disobey if you disobey the the contract you might be um in the risk of losing the the down
payment okay so it's very important yes so in this two month time frame do like from cpcv to signing
the deed does someone need a person to represent them during this Frame time frame mhm even if
you are if you live in Portugal I would recommend you to have a lawyer to to help you along the way
but especially if you're a nonresident you need someone to represent you here the lawyer has to
do five important steps here first help help you with a promisory contract uh inserting the Clauses
to protect you Etc then open a bank account here you're going to need a bank account here
and Via power of attorney the lawyer will open a bank account for you uh the CER certification of
documents some banks will require certification of documents or either you you apos this in the
US or abroad or you use the lawyer it's much more practical to use the lawyer uh more close
to the deed the lawyer will go to the finances to get the tax papers for the IMT the transfer tax
and the stamp Duty for the for the the property they do that they do this one one day before the
closing because the papers they expire in 24 hours so on the following day the lawyer will
be there you don't need to be there you can be present but you don't need to and the lawyer will
uh pay the taxes pay the deed sign the closing and and leave with the keys and the documents of
the property if you want to to put it to to start renting right away you can do this or or the keys
will be with the lawyer until you come and and then you go to your new house yeah let's run an
example scenario so let's say there's a property 250,000 what would be costs and expenses on that
type of property perfect for two for the property of 250,000 it's exactly 20% down payment plus 5%
in closing cost basically taxes so 20% for down payment will be 50,000 right uh the 5% I usually
divide the closing cost into the mortgage closing cost how much you spend to to get a mortgage with
the bank and the property closing cost that you're going to pay with or without without a mortgage if
you pay in cash you're going to pay the proper closing cost that that is the more salty part
let's say uh mortgage closing cost around 1,000 for the appraisal and other fees and a stem Duty
for the mortgage that is 0.6% of the loow on amount so in this case 0.6% of 200 is 1,200 so
mortgage closing cost 2,200 uh property closing cost IMT if it's a a primary house is 7,500 if
it's a secondary house 8,500 around that and you have to pay another um another uh tax here that
is the stem Duty for the property so it's 0.8% of the purchase price so 0.8% of 250,000 is 2,000 so
in the end closing cost will be 12,700 or 13,700 Plus the down payment okay so a large chunk right
there at the beginning that you have to be mindful of right yeah yeah the closing costs are expensive
but and has not they they are they have nothing to do with the annual property tax that is very
affordable in Portugal for example the AL liqua for anal property tax is 0.3% to 0.45% depending
on the city and you don't pay on the selling price let's say over you pay these on the based on the
face value of the documents that usually are not updated so uh probably for a 250,000 property
you pay over 100 and then it to be like let's say 0.4% of 100 to 400 per year okay that you can pay
with a 10% discount in the beginning of the year or if it's a large amount you can split in three
trenches one in the beginning of the year one in the middle one in the end of the year and earlier
you spoke about ages so is there an age group that is or is not eligible to get a mortgage yeah the
age limit here Kaye is 75 years old so let me give you an example if you are 45 or or or younger you
can benefit of the maximum term 30 years if you're 50 like me you have 25 years only but when you
have more when you are more than 50 years old you can and you give a and you give more down payment
like 25% you can incre extend the the term in 5 years so it can go up to the limit of 80 years
old okay but it depends on the bank so that's why it's great to to shop the banks to to check the
offers because they can give you different periods different rates uh the need of of life insurance
Etc okay so that leads me to my next question it's better than to shop the banks or do all of them
give the same rate oh for sure for sure you should shop the banks because they can give you different
uh scenarios different uh terms uh rates waver the life insurance or not so it's very important to do
this and if you go with us we can go directly to these Banks we know the best banks already we know
the best branches and managers to to help you and then if someone gets a mortgage can they use that
amount towards Renovations or is that separate it it will be like this K let's suppose you approved
for a certain amount with this preapproval you start your search and then you can use the way
you want for for example one US it Properties or or or um new properties that are ready that
has all the documents and and you can make the closing right away or you can buy a property plus
renovation so for example if it's 200,000 you can use 150 for the house 50 for the renovation you
can balance that you just have to uh show a budget to the bank uh for the appraisal to to to check
that and or or uh you can also uh buy land plus construction from zero or if you have the land you
can construct from zero up to 80% so um first get the pre-approved then you can use the the money
the pre-approved money the way you prefer okay and do you help investors and those looking at
commercial properties as well yes usually when you buy from abroad you buy it as a secondary house so
a secondary house uh you are allowed to explore it as an investment so you can put you can uh start
renting right away uh with no problem and then the tenants will be covering the the the mortgage
payments for you for commercial properties it's a different credit line it's more like a leasing
so it will be a shorter term higher rates and higher down payment but it's also doable if you
want commercial properties you also can do that so you're able to do both yeah Kay sure do the banks
allow prepayments yeah sure you can amortize uh partially or totally at any time okay uh the only
difference is that we have a little penalty here so during the variable rate period you pay 0.5%
as a penalty for over the amount you were early paying if you are in the fixed rate you pay 2%
so let me give you an examp an example if you are early paying €10,000 you have to pay 10,000 plus2
200 for for the penalty okay but you can do this at any time and am I able to sell the property
even if I still have a mortgage on it yeah absolutely it will be exactly as if there is any
any mortgage at all so you put it you you you you hire an agency to sell the house on the closing
date there will be two checks one will go directly to the to your bank to finish to to pay off the
the your mortgage and the other one will be will be uh delivered to you on the closing with the net
uh the selling price minus the the mortgage amount okay so with the Surplus okay what's the biggest
advice you would give someone who's interested in purchasing a property in Portugal for the
Foreigner to finance a property in Portugal the banks are more accustomed to Foreigner papers
they are they feel more more comfortable proving forigners here so I think it's it's a great moment
it's a window of opportunity because we never know until when this conditions will remain so uh one
advice would be either if you want to retire in 5 10 years or have a property for investment in
Portugal we can buy this now and then start renting need and and then with the with the
renting cover your mortgage payment so this is a a a thing that a lot of clients are are are doing
other two tips are uh for the visa for example if you uh when you apply to a Visa and you already
have a property you have an address in Portugal so it helps a lot because you have already invested
in the company when you don't have a proper you have to um show a leing of 12 months here in Port
to go to to access this so it's money let's say throw it out when you have a property you already
have your address so helps the Visa I think in my opinion uh and you also want to live in
Portugal once you're a resident for 5 years you can apply for the citizenship I think this is
great and I don't think there's other country that can do this but for sure Portugal is the
the the best path the easiest path so uh if you are planning to buy in the next six to 12 months
you can schedule your your video interview with me I will explain you everything in details to
the client and and ask for the list of documents pre-approve you and then you can start your search
and find your proper import to great rapael thank you for giving us a crash course on mortgages and
if you would like to get in touch with Raphael then email me at info@ xpats everywhere.com and
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