Buying your First House in Portugal with the Living Portugal Property Group
Thinking About Buying Your First Home?
With interest rates low, many renters are starting to think about purchasing their first house in Portugal of their own. While simple rental cost vs. mortgage cost comparisons can be very attractive, buying a house is a serious commitment, and there are many factors to consider:
How long you plan to live in the house?
Selling a house in Portugal costs money and If you have to move in the short term, the value of your home may not have appreciated enough to cover the costs of buying and selling.
The length of time that it will take to cover those costs depends on various economic factors. Average appreciation tends to sit at around 5% per year. In this case, you should plan to stay in your home at least 3-4 years to cover buying and selling costs. The real estate market can be particularly volatile, however, and dramatic swings up and down are not uncommon.
How long will the house meet your needs?
What features do you require in a house to satisfy your lifestyle now and five years from now?
People tend to remain in their houses in Portugal longer than they initially intend, primarily due to the work and expense associated with moving. Therefore it is worth considering a house with room to grow. Could the basement be turned into a den or extra bedrooms? Could the attic be turned into a master suite? Having an idea of what you'll need will help you find a home that will satisfy your needs for years to come.
House Affordability.
Is now the right time financially for you to buy a house in Portugal? Would you rate your financial picture as healthy? Is your credit good? While you can always find a lender to lend you money, people with poor credit tend to pay far more to borrow.
Some say that you should refrain from borrowing as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much house as you can afford, because with regular pay rises and increased earning potential, the big payment today will seem like less of a payment tomorrow. It is, however, important to stay within your comfort zone. Purchasing a house in Portugal involves many up-front and ongoing costs, and the stress of worrying about those costs often outweighs the satisfaction that may come from owning a slightly nicer home.
To determine how much of a house you can afford, talk to a lender or go online and use a house affordability calculator. Good calculators will give you a range of what you may qualify for. Then call a lender. While some may say that the "28/36" rule applies, in today's home mortgage market, lenders are making loans customized to a particular person's situation.
The "28/36" rule means that your monthly housing costs shouldn’t exceed 28 percent of your income and your total debt load shouldn’t exceed 36 percent of your total monthly income. Depending on your assets, credit history, job potential, and other factors, lenders can push the ratios up to 40-60% or higher. While we're not advocating you purchase a house in Portugal utilizing the higher ratios, it’s important for you to know your options.
Where will the money for the transaction come from?
Typically, house buyers in Portugal will need some money for a down payment and closing costs. However, with today's broad range of loan options, having a lot of money saved for a down payment is not always necessary.
If you can prove that you are a good financial risk for a lender. If your credit isn't stellar but you have managed to save 10-20% for a down payment, you will still appear to be a very good financial risk to a lender. High-ratio mortgages can be a good option for those who haven’t managed to save a large chunk of money, but naturally, these have additional costs associated with them.
The ongoing costs of home ownership.
Maintenance, improvements, taxes, and insurance are all costs that are added to a monthly house payment. If you buy a condominium or townhouse, a monthly homeowner's association or maintenance fee will be required. If these additional costs are a concern, you can make choices to lower or avoid these fees. Be sure to make your realtor and your lender aware of your desire to limit these costs.
If you are still unsure if you should buy a house in Portugal after making these considerations, you may want to consult with an accountant or financial planner to help you assess how your house purchase fits into your overall financial goals.
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