When you're thinking of buying a house and don't have the total amount to do so, it's normal to turn to a mortgage. This will give you the financial support you need, provided you meet the necessary conditions.
It's a time-consuming process and you should be prepared for it. You'll need to consult several banks and collect a series of documents until the house is appraised. Here are some tips to help you get through this phase with more wisdom and less worry.
Conditions for applying for a home loan
Before deciding which bank is best for you to apply for a home loan, you need to check that you meet the necessary conditions for them to grant it:
- Have the minimum amount required by the banks, which is 10% of the value of the house;
- Have the money available to pay for all the procedures associated with buying the house (appraisal, necessary documents, taxes);
- Have defined who the guarantors will be, should you need them.
How to choose the bank that offers the best conditions
Once you have the conditions in place to start researching the best financial proposals, you should:
- Compare different credit proposals, using a home loan comparator or a credit intermediary;
- Decide whether you want a fixed, variable or mixed rate;
- Analyze different types of effort rate, but you should always opt for one that does not exceed 35%, as recommended by the Bank of Portugal. To calculate the effort rate you need to do the following:
- Total financial payments/household income x 100 = % effort rate
Interest rates: which one to choose?
There are three types of interest rate you can choose from when applying for a mortgage. We explain what they are and what they consist of:
- Fixed rate - The value of the installment will be the same throughout the contract;
- Variable rate - The value of the installment varies according to the index. It is calculated by adding the index and the spread;
- Mixed rate - During the contract there is a period in which the installment has a fixed rate, followed by another with a variable rate.
Documents needed to apply for a home loan
Once you have decided where you are going to apply for financial help, you need to gather all the documents you need to hand over to the bank. These documents are:
- Identification document (ID card, Citizen's Card or Passport);
- Document with the tax identification number;
- Last income tax return submitted to the tax office and respective settlement note;
- Last three pay slips or green receipts (last six months);
- Last three monthly statements from all current accounts;
- Declaration from the employer (indicating professional status);
- Declaration of commencement of activity, if applicable.
Deadlines for paying back loans to the bank
According to the most recent macro-prudential recommendations from the Bank of Portugal, since April 1, 2022, the deadlines for mortgage loans are as follows:
- Credit up to 40 years (age 30 or less);
- Credit up to 37 years (age over 30 or 35 or less);
- Credit up to 35 years (age over 35).
Insurance to take out with home loans
When you apply for a home loan, you must take out two types of insurance:
- Life insurance - this is not compulsory by law, but is required by banks in most cases;
- Multi-risk insurance - taking out fire insurance is compulsory by law. Banks choose to recommend multi-risk insurance, which covers not only possible fire situations, but also the contents of the house, among other things.
Taxes to pay when buying a house
- In the process of buying a house, there are some taxes that you must pay and that you should take into account when you decide to start the process of buying a new house:
- IMT (Municipal Tax on the Transfer of Property);
- IS (Stamp Duty);
- IMI (Municipal Property Tax).
- Finally, we recommend that you have a savings account for possible unforeseen events that may arise and which could jeopardize the fulfillment of the loan.
Source: idealistanews