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Mortgage

mortage

A guide to obtaining a mortgage without stress.
All the essential information on financing your upcoming home purchase.

If you are curious about the requirements for obtaining a mortgage, including income, credit, and debt prerequisites, you’re not alone. Simply walking into a bank with a checkbook and hoping for the best interest rate and a smile won’t cut it. Mortgages entail a rigorous screening process and can be perplexing for first-time home buyers. But fear not, we’re here to help.

Qualifying for a mortgage necessitates a comprehensive understanding of what you’ll need to present to the lending institution to convince them to entrust you with a significant sum of money and a favorable mortgage rate. This guide provides all the necessary information to assist you in achieving this goal and provides advice if you haven’t yet completed the necessary steps to be
approved.

First and foremost, you’ll need to collect a plethora of paperwork, ranging from bank statements to tax returns and W-2s. But in addition to documentation, there are a few other items you’ll need to obtain a mortgage loan. Here are the essentials:

A high credit score is important when applying for a mortgage, as it determines the level of risk you pose as a borrower. While a perfect score of 850 is rare, scores of 760 and above are considered optimal for obtaining the lowest interest rates. A good credit score is between 700 to 759, while a fair score is between 650 to 699. If your credit history has several negative marks such as late payments or unpaid bills, your score may fall below 650, making it difficult to secure a conventional home loan. You may need to work on improving your credit.

To qualify for a home loan, you must have a stable and substantial income that can offset your outstanding debts, including potential mortgage payments. Your debt-to-income ratio (DTI) compares your monthly earnings with your debts, and the recommended DTI threshold is 36%. It’s important to have a consistent income history for at least two years, which can be challenging for self-employed individuals or those starting their careers.

Most lenders in Portugal expect to see a 40% down payment on a home purchase.

If you want to learn how to shop for a mortgage that meets your needs, it advises starting three to six months before buying a home and investing time in boosting credit scores to qualify for the best mortgage rates. We recommend finding a low fixed interest rate and analyzing closing costs. Buyers should aim to get what is called a good-faith estimate from at least three mortgage lenders and be mindful of interest rate fluctuations.

To simplify your life, you may wish to collaborate with a mortgage broker who considers all of these factors and locates the most suitable mortgage option for you.

Pedro Coelho, the Mortgage Supervisor at A1 ALGARVE LUXURY REAL ESTATE, possesses an extensive experience in the Portuguese mortgage market and is authorized and licensed by the Bank of Portugal. He collaborates with all the prominent lending banks in Portugal to guarantee that he can offer the most advantageous mortgage options to clients across the entire market.

There are multiple compelling reasons why opting for Pedro’s services is a better alternative to approaching lenders directly. Firstly, Pedro has established relationships with all of the major lending banks in Portugal, including Santander, Caixa Geral de Depósitos (CGD), União de Créditos Imobiliários (UCI) and Banco Português de Investimento (BPI). This means that instead of navigating the maze of individual lenders, Pedro can select the best deals available across the entire market on behalf of our clients.
Pedro speaks English and his local expertise is a significant advantage. Securing the right mortgage begins with getting the application right from the outset, and Pedro is well-versed in the necessary steps for a successful application. He can complete all relevant paperwork and match clients’ financial profiles with the most responsive lenders.
It’s worth noting that Pedro’s mortgage services are free of charge to clients, as he is paid by the lenders.

Pedro is highly efficient in responding to new client inquiries, typically providing a pre-approval agreement in principle (AIP) on the same day of receiving the initial inquiry form. This AIP gives you a budgetary idea and enables you to begin searching for a suitable property. Once your offer for your chosen property is accepted, Pedro will make an application for formal approval.

Pedro caters to a diverse range of foreign nationals, with the largest proportion of our clients being American. Several factors are driving the US market, including significantly lower mortgage rates in Portugal than in the USA, affordable coastal homes, a favorable climate, lifestyle and culture. Also, compared to other European countries, purchase taxes are lower, and new residents can enroll in the Non-Habitual Regime, which can significantly reduce their annual tax bill.

Although mortgage criteria in Portugal are slightly more stringent than two years ago, getting a mortgage in Portugal remains relatively straightforward, especially for Americans and British nationals, who may find it easier to secure a mortgage in Portugal than in their home countries. Portuguese lenders evaluate applicants based on various factors, such as their total income, existing liabilities (such as car loans or mortgages), credit history, and the value of the property they intend to purchase.

There are various options available for Portuguese mortgages, with mixed rates being the most popular product currently. With mixed rates, borrowers can x their rate for a specified period before transitioning to a variable rate (pegged to the Euribor) for the remainder of the term. For instance, borrowers can x a rate of 4-4.2% for ten years for a 30-year term before reverting to a variable rate for the remaining 20 years.

Other mortgage products include variable rates of 3.65% and fixed rates of 4.5-4.6%, which are achievable. Lenders usually offer up to 70% loan-to-value, but some cases can provide up to 80%.
The length of the mortgage term is flexible, but most clients opt for 20-25 years. All mortgages are repayment-only, and the age limit for getting one is 75.

If you require mortgage advice, please contact us at info@a1-algarve.com