Buying a home requires careful financial planning to handle the upfront charges that come with buying a property. It is not only thinking about the value of the mortgage installment, but also considering a set of fees, commissions and taxes. We explain everything in this article with the help of personal finance experts.
The real estate market in Portugal remains dynamic, with an increasing number of transactions and house prices on the rise. Since July 2018, the Bank of Portugal has stipulated that banks finance a maximum of 90% of the lowest value between the purchase price of the property and the appraisal value. 100% mortgage financing is a thing of the past.
Main Costs When Buying a House
Initial Input (Signal)
The largest slice of the initial investment will be for the down payment. The minimum 10% required down payment for permanent housing must come from equity, that is, savings. It is a mistake to ask for financing for this amount, as this can make the credit approval process unfeasible. If the purchase is for secondary housing, the minimum down payment is 20%. In addition to the initial down payment, there will be a commitment to the monthly installments of the mortgage, which can represent a significant portion of the family budget.
Municipal Tax on Onerous Transfers of Real Estate (IMT)
The IMT is a tax paid to the State at the time of purchase of a property. The amount of this tax is calculated based on the purchase price or the taxable patrimonial value (VPT) of the property, whichever is greater. Rates vary between 1% and 8%, depending on the type of property and its value. Through the IMT and IS Simulator, it is possible to calculate the tax due.
Stamp Duty
This tax is a flat rate of 0.8% on the purchase price of the property. It is paid at the time of the deed and, like IMT, it is a cost that cannot be avoided.
Notarial and Registration Costs
The deed of purchase and sale must be formalized before a notary or lawyer, which entails notary costs. In addition, the new owner must register the property in their name at the Land Registry Office. These costs can vary, but are generally between 500 and 1,500 euros. The cost of the procedure at the registry office has a fixed price list of approximately 700 euros, plus certificates.
Read also: Documents that the seller has to provide
Attorneys' Fees
Although it is not mandatory, many buyers choose to hire a lawyer to ensure that the entire buying process is conducted legally and smoothly. Those who do not buy through a real estate agency typically use the services of a lawyer to ensure that all legal procedures are followed. Attorney fees can vary widely depending on the complexity of the transaction and the prestige of the attorney or law firm.
Property Appraisal
If the purchase is financed by a bank loan, the bank will require an appraisal of the property to determine the market value. This cost is usually borne by the buyer and can range between 200 and 600 euros.
Banking Commission
In the case of bank financing, in addition to interest, banks charge commissions for opening credit. These fees can include filing fees, processing costs, and other administrative expenses, which can total between 1% and 2% of the loan amount.
Life Insurance and Property Insurance
When taking out a loan, the bank will require the buyer to take out life insurance to guarantee repayment of the loan in the event of death or disability. In addition, fire or multi-risk insurance is required for the property. The costs of these insurances can vary significantly, depending on the value of the property and the buyer's profile.
It is important to consider that insurance costs influence the APR (Annual Percentage Rate of Charge) of the mortgage. The APR includes not only the spread (bank's profit margin) but also all costs associated with credit, such as insurance and commissions, reflecting the total cost of the loan to the buyer.
Read also: Being a guarantor on a home loan
Moving and Remodeling Costs
Finally, it is important to consider the costs associated with moving to the new home and any remodeling or decoration works. These costs can vary greatly, but it is always prudent to set aside a portion of the budget for these expenses.
Conclusion
Buying a house in Portugal involves a number of additional costs that go beyond the price of the property. It is essential that buyers are aware of these costs so that they can properly plan their purchase and avoid financial surprises. It is always advisable to consult with an expert, whether it is a lawyer, a real estate consultant or a financial advisor, to ensure that all steps of the process are carried out efficiently and legally.
We hope this guide has been helpful in shedding light on the various costs associated with buying a house in Portugal. If you have any questions or need more information, please feel free to contact us. Good luck on your journey to finding your dream home!
Read also: What questions should you ask when buying a house?