How to Finance Your Property Purchase in Portugal

Published on 9th June, 2025

Sarah’s Quest Begins: Cash vs Mortgage

Sarah had saved diligently, dreaming of a small apartment near Porto. Her initial thought was a cash purchase, simplifying things. But exploring options on PortugalProperty.com revealed slightly larger, better-located properties just beyond her cash reach. Could a Portuguese mortgage bridge the gap? Guidance: Don't assume cash is the only or best way. Leveraging finance can open up more property options or free up capital for renovations and other costs. Portuguese banks readily lend to qualifying non-residents.

Step 1: Understanding Eligibility and LTV

Sarah contacted a mortgage broker recommended by Berkshire Hathaway HomeServices Portugal Property. The first reality check: Loan-to-Value (LTV) ratios. While Portuguese residents might borrow 80-90%, non-residents typically face stricter limits. Guidance: Expect Portuguese banks to offer non-residents mortgages covering 60-75% of the property's purchase price or official valuation, whichever is lower. You'll generally need a deposit of 25-40%, plus funds for purchase taxes and fees. Sarah realised she needed a substantial deposit, but less than the full cash price.

Step 2: The Importance of Pre-Approval

The broker stressed getting mortgage pre-approval before seriously house-hunting. This involved submitting preliminary financial documents. Guidance: Mortgage pre-approval is vital. It confirms your borrowing capacity, strengthens your position when making offers, and prevents disappointment later. Start this process early, ideally 3-6 months before you intend to buy. Sarah gathered her documents: passport, NIF (Portuguese tax number), proof of address, recent bank statements, proof of income (payslips, tax returns), and credit reports from the UK.

Step 3: Gathering the Documentation Mountain

Portuguese banks require thorough documentation to assess affordability and risk. Guidance: Be prepared to provide detailed financial proof. Common requirements include:

• Valid identification (passport)

• Portuguese NIF number

• Proof of current address (utility bill)

• Proof of income (last 3-6 months' payslips, recent tax returns, employment contract if applicable)

• Last 3-6 months' bank statements (showing salary deposits and regular expenses)

• Credit report from your home country

• Details of existing debts or mortgages

Sarah found gathering and translating some documents took time, reinforcing the 'start early' advice.

Step 4: Fixed vs Variable Rates

The broker explained the choice between fixed and variable interest rates. Variable rates are typically tied to Euribor (Euro Interbank Offered Rate) plus the bank's margin (spread). Fixed rates offer payment certainty for a set period. Guidance: Variable rates have recently been higher but may decrease if Euribor falls, offering potential savings but also risk. Fixed rates provide stability for budgeting, often for initial periods (e.g., 2, 5, 10 years) before reverting to variable. Assess your risk tolerance and the prevailing interest rate environment. Projections suggest Euribor may ease further in 2025, potentially making variable rates more attractive, but certainty has value. Sarah opted for a 5-year fixed rate for peace of mind.

Step 5: The Bank Valuation

Once Sarah found her apartment and signed the Promissory Contract (CPCV), conditional on financing, the bank instructed an official valuation (avaliação). Guidance: The bank's mortgage offer is contingent on their valuation. They will only lend based on their assessment of the property's worth, which might be lower than the agreed purchase price. If the valuation is low, you may need to find additional funds for the deposit. Thankfully, Sarah's chosen apartment valued appropriately.

Step 6: Final Approval and Completion

With the valuation confirmed and all documents verified, the bank issued the final mortgage offer. Sarah’s lawyer coordinated with the bank for the funds to be available at the final deed signing (Escritura). Guidance: The mortgage process integrates with the property purchase timeline. Ensure your lawyer and mortgage broker communicate effectively to meet deadlines set in the CPCV.

Sarah’s Success: Key Takeaways

Sarah successfully financed her Porto apartment. Her journey highlighted key lessons: start early, get pre-approved, understand LTV limits for non-residents, prepare documentation thoroughly, carefully consider interest rate types, and factor in the bank valuation. Guidance: Using an experienced mortgage broker specializing in non-resident finance can streamline the process significantly. They understand bank requirements and can access multiple lenders.

Conclusion:

Financing a property purchase in Portugal as a foreigner is entirely achievable in 2025 with careful planning and the right support. Understanding the process, requirements, and potential hurdles empowers buyers like Sarah to navigate the mortgage landscape successfully. Summary: Plan early, document diligently, seek expert advice.

For more information, contact us at info@portugalproperty.com

Published in: Money / Portugal Property / Property