What you need to know to choose the best home loan

• Acquisition or construction of permanent, secondary, or rental housing;
• Acquisition or maintenance of property rights over existing or planned land or buildings;
• Payment of the down payment in the context of the future acquisition of property for permanent, secondary, or rental housing.

The mortgage is essentially characterized by:

• having a long term;
• usually requiring a real guarantee (the mortgage of the property itself or another accepted by the bank) as a guarantee of repayment;
• having rates that are usually lower than other types of credit.

The following credit contracts are also subject to the rules of mortgages, as long as they are concluded with consumers:

• Consolidated credit contracts or credit contracts without a defined purpose, when secured by mortgage or equivalent guarantee on properties;
• Financial leasing of real estate for permanent, secondary, or rental housing.

Persons with disabilities, with a degree of incapacity equal to or greater than 60%, can enter into mortgage contracts subject to special rules covered by the subsidized housing credit regime for people with disabilities.

2. How does the mortgage process work?

The mortgage application is a process that unfolds in stages and usually has contracting deadlines ranging from 2 to 3 months. Follow the steps:

• Submission of the necessary documentation;
• Inform the institution of the negotiated amounts and the loan amount you wish;
• Analysis or pre-approval;
• Valuation of the property to be provided as collateral;
• Processing of associated insurances (medical exams may be required);
• Approval and issuance of FINE (European Standardized Information Sheet);
• Execution of the deed or DPA (authenticated private document);
• Congratulations! Welcome to your new home.

3. What documents are needed?

The documents required may vary depending on the specific purpose of the mortgage. Prepare yourself with the following set of documents to start the process.

Identification, income, and liabilities documents (analysis and pre-approval phase):

• Identification document (citizen card or passport or residence card);
• IRS declaration from the previous year;
• IRS settlement note from the previous year;
• Pay slips from the last 3 months;
• Employment bond declaration issued by the employer;
• Bank statements from the last 3 months;
• Credit responsibility map from the Bank of Portugal;
• Mortgage deed (in cases of transfer);

If you are self-employed:

• Declaration of commencement of activity;
• Billing summary (green receipts from the last 6 months or print billing summary from the e-fatura portal);

If you receive other income:

• Copy of rental receipts if it concerns rental income;
• other documents proving income (e.g., pensions received, business profits, …)

Regarding the property subject to collateral:

• Urban property registration (tax office portal);
• Property certificate (land registry);
• Property plans (if available);
• Approved construction project (if it concerns financing for construction);
• Detailed budget of the works to be carried out (if it concerns financing for construction).

Contracting and deed phase:

• Usage license;
• Energy certificate;
• Publication of the municipal right of preference;
• Technical sheet of the housing (when applicable).

4. What amount will the bank lend me?

The loan amount you can obtain from the bank will depend on several factors and parameters, particularly your solvency analysis.

In the pre-analysis of the credit request, your age, family situation, employment, income and regular expenses, existing liabilities with other credits, and future circumstances that may negatively affect your ability to meet the credit obligations will be considered. Credit institutions pay particular attention to solvency analysis before granting credit or increasing the amount of an already contracted loan, as this analysis determines the institution’s assessment of your ability to meet the obligations you intend to assume, that is, to determine your solvency.

Future situations such as possible income reduction (especially after retirement), potential increase in expenses (for example, if you are a guarantor or co-signer), potential increase in the assumed installment due to the chosen rate regime (when variable rates are applied), and other similar situations are taken into account.

Limits on credit granting

Since 2018, new credit contracts must simultaneously respect limits related to the value of the property, the clients’ effort rate, the loan term, and the repayment modality set by the Bank of Portugal:

• The limit associated with the value of the property (LTV – Loan-to-value) must not exceed:
  • 90% of the acquisition or appraisal value (the lowest) for loans aimed at permanent housing;
  • 80% of the property value when the loan has other purposes related to permanent housing;
  • 100% of the property value when it concerns the acquisition of property from a financial institution.
• The limit associated with the total amount of installments (including the one you intend to assume) in relation to income (DSTI Debt-service-to-income) must not exceed:
  • 50% of the client’s income.
• The limit associated with the loan term must not exceed:
  • 40 years for clients aged 30 or younger;
  • 37 years for clients aged over 30 and 35 or younger;
  • 35 years for clients aged over 35;
  • Note: The maximum age of borrowers at the end of the loan must not exceed 75 years.
• Regarding the repayment modality of the loan, it is established that new contracts should not have grace periods, and the payment of installments must consist of interest and principal.

When it comes to preventing or regularizing default situations by clients, these limits may not be observed.

5. What mandatory insurances are associated with the mortgage?

For your protection, the protection of your family, and the protection of your investment (property), it is natural to be required to take out insurances associated with your mortgage. It is important to understand the significance of each of these insurances:

• Life insurance – The purpose of life insurance is to prevent the payment of the outstanding capital of your mortgage to the bank in the event of the insured person’s death, thus ensuring that your investment will be free of burdens, as the debt associated with the mortgage is extinguished, leaving no charges for your legal heirs. In this insurance, you can also take out coverage for disability, for the profession or paid activity, in which case the conditions for contracting with the insurer will determine the percentage of incapacity you must reach to activate the insurance.
• Home multi-risk insurance – This insurance aims to protect against risks, probable but uncertain, that may occur with your property, with mandatory coverage for fire risk and other additional coverages. Thus, in the worst-case scenario (fire scenario with total loss), an incident that occurs with your property will be protected by a policy that will guarantee you a capital that allows for the reconstruction value of the same.

Although these policies are usually required and suggested to be taken out by the banking institution that grants your mortgage, note that you can choose to take out these policies with an insurer of your choice, provided that the coverage requirements requested by the banking institution are met. Usually, your banking institution offers you a discount or a bonus on the spread if you take out these policies there, but you should always compare the alternatives; the discount granted on the spread (which reflects in a lower installment) may not always be worth it, and you may achieve better savings values in the differences in insurance premiums for your policies at much lower amounts.

6. What amounts should I have for the purchase of a property?

It is known that the higher the loan amount you request from the bank, the more you will pay in monthly installments, and the longer the chosen term, the higher the total amount of interest and other costs, that is, the higher the MTIC (Total amount charged to the consumer). For this reason, at the time of contracting, you should make good planning and seek a balance between the use of your own capital and the amount to be requested from the bank. Do not forget, from early on, it is important to always maintain a capital reserve to face unforeseen events.

Analyzing the situation by minimum capital amounts you should have will be:

• 10% of the property purchase price if it is for your permanent residence;
• 20% in the case of purchasing a property for other purposes;

Additionally, you should also add to these amounts the values for:

• Purchase taxes (IMT Stamp Duty on purchase and sale);
• Stamp Duty on the opening of credit;
• Evaluation and banking process expenses;
• Deed and registrations;

These amounts vary according to the purchase values, purpose of the housing, and amounts requested from the bank. To know these amounts in detail send us your request

15. How to choose the best proposal?

Just as there are no two people alike, there are no two houses alike, and there are no identical credit proposals; choosing the best credit proposal is not an easy task, but the good news is that you can count on us to help you understand and make a better decision. Until we start an analysis process, we do not know which banking institution will make the best proposal; the important thing is to start.

In your choice, you should consider:

• The TAEG (Global Effective Annual Rate – measures the cost of the loan for the client, per year, as a percentage of the amount borrowed);
• The MTIC (corresponds to the total amount that the client will have to pay to the institution throughout the loan period, including capital, interest, commissions, taxes, and other charges);
• The type of rate that will be applied to the loan (fixed rate, variable rate, or mixed rates. In the mixed rate regime, there is usually an initial fixed rate period and a variable rate for the remaining term);
• The index to be applied (Euribor at 3, 6, or 12 Months);
• The mandatory products associated with the mortgage;
• The Life and Multi-risk insurances;
• Collection expenses (when they exist);