Conditions for a Home Loan in Portugal

Pitfall #1: Jumping in Without Knowing the Conditions for a Home Loan in Portugal

Before approving a mortgage, Portuguese banks assess several aspects of your personal situation and your project. Here are some key points to consider to stack the odds in your favor.

Loan-to-Income Ratio (Taxa de Esforço): 35% Maximum

In Portugal (and elsewhere), it’s recommended that your monthly loan payments not exceed 35% of your total income.

This debt capacity includes all monthly repayments (e.g., other loans) and any rent you pay if you’re a tenant.
A higher debt ratio can affect your loan conditions: the bank may require additional guarantees or simply refuse your request if they judge your financial burden too high.

Down Payment (Entrada): 10%–15% of the Property Value

Portuguese banks usually require a 10% to 15% down payment for a property. However, the exact percentage may depend on the appraised value of the property (more on that below) and your personal profile.

Age Limit: 75 Years Old by the End of the Loan

Typically, Portuguese banks set a maximum age limit of 75 years at the loan’s end.

If you’re younger, you may qualify for a longer repayment period—potentially up to 40 years. While a longer term ultimately costs more in total interest, it does result in lower monthly payments.
Older borrowers will inevitably be offered shorter repayment periods.

Stable Employment Status

You must show stable employment to qualify for a mortgage in Portugal. Banks generally prefer applicants on permanent contracts.

Freelancers and fixed-term employees can face more hurdles or have to provide extra guarantees.
Seniority in your current job is a plus in the bank’s eyes.

Impeccable Credit History

Lenders examine your credit record to ensure you have a strong financial track record. Any record of unpaid debts or past credit issues in Portugal can drastically reduce your chances of approval.

Property Appraisal: Financing Up to 90% of the Assessed Value

An independent appraisal sets the property’s value—distinct from the listed sales price.

Banks typically lend up to 90% of either the appraised value or the purchase price, whichever is lower.

Pitfall #2: Insisting on Avoiding Portuguese Banks at All Costs

Some buyers assume it’s cheaper to go through a French bank (or a Franco-Portuguese one). But this isn’t always true.

A French bank with no presence in Portugal will often require collateral on property in France, making it harder if you don’t own French real estate.
Franco-Portuguese banks sometimes offer attractive options for acquiring property in Portugal—especially if you plan to keep ties with France or eventually return there.

Moreover, Portuguese banks’ interest rates aren’t necessarily higher. Rates in Portugal are pegged to a European index (Euribor), just like French banks. What matters is finding a lender that adds the smallest margin on top of that index.

Tip: A French-speaking mortgage broker can be extremely helpful in sorting through these details.

Pitfall #3: Skipping the Specific Steps Required to Get a Mortgage in Portugal

Getting a home loan in Portugal follows a five-step process:

Initial Simulation
Comparing Market Offers
Pre-Approval
Property Appraisal
Final Mortgage Approval

Each step has its own quirks—often surprising for newcomers. Here’s a quick overview.

Step 1: Perform an Initial Loan Simulation

Whether you’ve already found a property or simply want a ballpark figure for what you can afford, the first step is to run a simulation.

You can do this yourself via an online simulator (type “simulador credito habitação” in your search engine) or through a French-speaking mortgage broker in Portugal.
At this stage, you’re basically checking your financial capacity using a simple calculator.

Key Points to Keep in Mind:

Monthly loan payments should not exceed 35% of your income.
You must contribute at least 10% of the purchase price, sometimes more.
Expect approximately €8,000 in additional fees for a €100,000 property.
The loan term depends on your age at loan maturity. For instance, if you’re 50, you may not be able to spread payments over 30 years.

A mortgage broker familiar with Portuguese lending rules can help clarify specifics, so you start off with realistic expectations.

Step 2: Bank Pre-Approval (Evaluating Your Borrowing Capacity)

Pre-Approval is the next step—essentially a preliminary go-ahead from the bank.

In Portugal, this “pre-approval” doesn’t guarantee the final mortgage (it’s more like a “preliminary agreement”).
The bank focuses on you: your personal, financial, and professional background, as well as your banking history.
Maintain spotless accounts in the months leading up to your application—avoid overdrafts, fees, and any administrative seizures.

Information the Bank Typically Requests

Property value
Type of interest rate (fixed, variable, or mixed)
Loan amount
Your down payment

If you’re working with a broker, they’ll do a preliminary evaluation before submitting it to the bank.

Documents Required for Pre-Approval

ID card or passport
Most recent tax return (Portuguese or foreign)
Employment contract or proof of freelance activity
Recent pay slips
Bank statements for the last three months

Debt Ratio Calculation (Taxa de Esforço)
The bank uses your documents to quickly gauge your finances, calculating a debt ratio to determine your maximum borrowing capacity.

Timeline for Pre-Approval

This can vary from a few days to a month, depending on the bank. A broker can speed the process since they deal directly with institutional contacts.

During pre-approval, you’re not yet committed to buying the property—but ideally, you’ll ask the realtor or owner to “hold” the property for you. A pre-approval letter can help you secure that agreement.

Step 4: The Property Appraisal in Portugal (Avaliação Bancária)

An appraisal is mandatory for a Portuguese mortgage—it sets the value the bank will base your loan on, usually up to 90% of the lower amount between the appraisal or the purchase price.

Independent Expert: The appraisal must be done by a certified technician registered with the Bank of Portugal, not just any real estate agency.
Fee: This isn’t free. In most cases, the buyer covers the cost, which is based on the property’s size. For a two- or three-bedroom apartment, the fee might range from €200 to €350.

Different Purchase Price vs. Appraisal Value: Effects on Your Loan
If the appraised value is lower than the purchase price, you’ll need a larger down payment to cover the gap. If it’s higher, the loan is based on the lower of the two amounts—but the difference won’t necessarily increase your borrowing limit, just your equity in the property.

Step 5: Final Mortgage Approval

After the appraisal, the bank re-examines your file for final approval (Carta de Aprovação)—the equivalent of a “loan offer” in other systems.

Key Loan Offer Details:

Loan amount granted
Repayment terms (duration, rate, monthly payments)
Validity period of the offer
Guarantee that the bank will officially lend you this amount

You have a 7-day legal cooling-off period after receiving the final offer. No penalty applies if you back out during that period.

Releasing Funds
The bank usually disburses the funds shortly before the final deed signing (Escritura). The loan amount may be transferred directly to the seller or into an escrow account, depending on the contract.

When Is the First Mortgage Payment Due?
Typically about one month after the funds are released, though the exact date is set in the loan contract. Sometimes you can negotiate a deferred payment if you plan renovations.

Pitfall #4: Picking the Wrong Type of Interest Rate

In Portugal, various mortgage types are really about different interest rate options:

Fixed Rate (Taxa Fixa)
- Advantages: Predictable monthly payments, no risk if market rates rise.
- Drawbacks: Usually higher initial rates; you won’t benefit if rates go down.
Variable Rate (Taxa Variável)
- Advantages: Could drop if the Euribor (reference index) falls; often lower initial rate.
- Drawbacks: Unpredictable monthly payments if rates rise, potentially higher overall cost.
Mixed Rate (Taxa Mista)
- Advantages: Starts with a fixed rate for a set period, then switches to variable—often beneficial if interest rates are low during the variable phase.
- Drawbacks: You must handle the uncertainty when the rate changes, and a future rise in rates could hit you hard.
Capped Rate (Taxa Capada)
- Advantages: Payments vary within a set range—offering some protection against sharp increases; typically cheaper than a long-term fixed rate.
- Drawbacks: Initial capped rates can be slightly higher than purely variable rates, and significant drops in market rates (though unlikely) might not fully benefit you if renegotiation isn’t possible.

Pitfall #5: Overlooking the Fees Involved in a Portuguese Mortgage

Property Purchase Costs

If you’re planning to buy in Portugal, budget for:

IMT (Property Transfer Tax): Typically between 5% and 8%, depending on the property price and whether it’s a primary residence.
Notary/Registration Fees: Generally €500–€1,500, depending on the purchase details.
Attorney Fees: Common in Portugal to secure the transaction. Ranges from €1,000 to €3,000.
Appraisal Fee: €200–€500 for the mandatory mortgage valuation.
Bank Arrangement Fees: Typically €500–€1,000, depending on the bank.

Required Insurance for a Mortgage

In Portugal, you must have two kinds of insurance when you take out a mortgage:

Life Insurance: Similar to “borrower’s insurance” in France, covering death or serious disability. It protects your family and ensures the bank can recover the remaining loan amount if something happens.
Home Insurance: The bank also requires insurance to cover the property against fire, flood, or theft. Costs vary depending on the property’s value and chosen coverage.

In Summary

Buying a property in Portugal and securing a mortgage there involves specific rules and steps that might differ from your home country. You’ll need a solid understanding of:

Loan-to-income ratios, down payments, and appraisal values.
The multi-step mortgage process, from initial simulations to final approval.
Different interest rate models—and how each can impact your long-term budget.
Additional fees, taxes, and insurance obligations unique to Portugal.

By staying aware of these five pitfalls—and gathering the right information from brokers, banks, or local experts—you’ll place yourself in the best position to make a savvy real estate investment and secure the financing that suits your needs. Happy house hunting in Portugal!