USA vs. Portugal Mortgages: A Transatlantic Home Loan Showdown – Imofind News

Dreaming of owning property in Portugal? You’re not alone! With a surge of Americans
relocating or investing in Portugal’s vibrant property market, understanding the mortgage
process is key. If you’re planning to finance your purchase, knowing how the Portuguese
mortgage system compares to the US is essential.

While the prospect of securing a mortgage in Portugal might seem daunting, it’s actually
quite manageable. This guide reveals the crucial differences between the two countries,
covering everything from eligibility assessments to interest rates and the closing process.
Prepare yourself to confidently navigate the Portuguese property ladder!

Although the mortgage process in Portugal isn’t overly complicated, significant differences
exist compared to securing financing in the US, particularly regarding mortgage eligibility.
First, let’s explore the general requirements for obtaining a mortgage in Portugal, before
highlighting the key distinctions between the two nations.

Mortgage eligibility requirements in Portugal

Here’s a simplified breakdown of what you’ll typically need to qualify for a mortgage in
Portugal:

• Establish a strong credit history to boost your loan approval chances.
• Provide proof of consistent income, usually through pay slips or tax returns from your home
  country, demonstrating your ability to handle monthly mortgage payments.

Debt-to-Income ratio

Portuguese lenders kick off the mortgage application with a debt-to-income (DTI) ratio
assessment. This involves calculating your monthly debt obligations (loans, other mortgages)
and dividing it by your gross monthly income. Aim for a DTI of around 35 to 40 percent in
Portugal.

In the US, a DTI of 43 percent is generally the maximum acceptable ratio for mortgage
approval, although a more desirable DTI is around 36 percent or lower.

It’s important to note that in the US, lenders primarily consider your gross income. Factors
like health insurance, retirement plans, or other deductions do not impact eligibility, as
long as your gross income meets the specified requirements.

Portugal follows a similar approach, considering your gross earnings. However, lenders may
also review your net income as shown on pay slips, tax returns, and confirmations from
accountants or employers.

Age limits

A significant difference in mortgage eligibility lies in age restrictions. In the US, the Fair
Lending Act prohibits age limits for loan applicants. However, in Portugal, while no explicit
statutory maximum exists, banks typically set their own limits, usually around 70-80 years
old. Moreover, if you’re over 60 and seeking life insurance (a common loan requirement),
securing it can be challenging. In both countries, you must be at least 18 to take out a
mortgage. Health issues can also complicate mortgage approval.

Navigating the mortgage landscape reveals a key cultural difference. In Portugal, the
process can feel more personal and less automated compared to the US, where approval relies
heavily on computerized systems.

In the US, your credit score, income, assets, and other financial data are fed into an
automated system. Meet the criteria, and your application is approved.

Portugal takes a slightly different route. A mortgage broker presents your documentation to
various banks to secure the most favorable deal possible. Acceptance can vary from bank to
bank, and even presenting your case differently to the same bank can sway the outcome.
Factors like your relationship with the bank, job stability, and the overall presentation of
your application can influence the decision.

**This is where a skilled mortgage broker becomes indispensable, leveraging their market
knowledge to showcase your application in the most compelling light.**

The Home Buying and Closing Process

The home buying and closing process varies between Portugal and the USA. Let’s outline the
key differences in the buying and closing stages.

Portugal’s fragmented property market

Portugal’s real estate market is scattered, lacking a centralized platform for all properties.
This contrasts with the US, which boasts a public database of all property listings. To see
the market, engage a
realtor in Portugal, preferably a buyer’s agent. They’ll grant you full market access, ensuring you never miss
out on stellar properties.

Promissory Contract in Portugal

Once you agree on a property in Portugal, the next phase will be to sign a Promissory
Contract with the seller. This agreement is lawfully binding and it highlights the terms and
conditions of the property sale.

For the promissory Contract, anticipate paying around 10 percent of the purchase price to the
seller. Backing out as a buyer means losing this deposit. But, if the seller fails to complete
the deal, the deposit is reimbursed, and they owe you double.

Stages of approval and differences in the buying process

See below, for a breakdown of the approval stages in Portugal to get a mortgage.

In Portugal

Here are the stages of approval:

1. Financial approval: Reviewing income, credit history, and debt-to-income ratio to assess
   the ability to make mortgage payments. 
2. Technical approval: Perform an evaluation to find the property’s fair market value. 
3. Final confirmation: Doing a title review and property legality assessment, checking for
   liens or legal issues before closing. This is why hiring a qualified real estate lawyer is
   important.

In the USA

In the USA, here’s what to expect.

• Pre-qualification: An initial green light from the lender indicating how much you can
  borrow
• Earnest money: Earmarking a relatively low amount – around 1 to 3 percent of the home’s
  price to an agent. 
• Inspection and appraisal: Appraisals are sometimes forgone with a large down payment
  and solid credit. 
• Title work: Reviewing liens and other issues.
• Closing: You sign many more documents in the USA as compared to Portugal.

Is the mortgage and buying process simpler in Portugal or the USA?

It depends on what you’re looking for; neither one is more straightforward. Americans might
find the steps in the USA easier to handle seeing as their familiarity with their system. 

So, securing skilled aid during the course of the process is essential. This is imperative
with the varying differences of the buying system. 

In Portugal, fewer signatures are involved at closing and the process relies more on personal
relationships, which can be seen to show that its a bit simpler. The system in the USA is
highly standardized and you will need to ensure your credit and finances can meet strict
automated guidelines. 

Working with a trusted real estate lawyer

While not required, it is integral to collaborate with a law expert during property buying.
Portugal does not have a system protecting for the home.

Many instances have come up when a property is bought, only to find out that it isn’t
legal or the seller has unpaid taxes. So by having a property expert can help keep buyers away
from future legal problems with the property.